Direct market access (DMA) solutions provider Advanced Markets has launched a Full Order Execution (Fox) block trading mechanism, which allows buy-side market participants to execute large trades anonymously in a single transaction with a single bank liquidity provider.
The mechanism, available via Fortex 6, a new front-end platform, as well as API and FIX connections, has been in beta-testing with a group of clients and will formally launch today (24 November) to all buy-side clients.
At its heart is a new liquidity protocol that allows banks to stream liquidity at different volume tiers, enabling orders to be executed for their full quantity. Initially, sizes quoted by the 10 participating banks will be 10 and 20 million currency units.
The block liquidity protocol differs from those used on other multibank platforms, which aggregate all available bids or offers to meet the desired trade amount, says Anthony Brocco, executive chairman of Advanced Markets. Fox, instead, aggregates block prices at each discrete volume tier, enabling clients to trade on the best price for the full block quantity with a single bank counterparty.
Brocco says Fox minimises pre- and post-trade information leakage and market impact, two of the biggest concerns for market participants, by allowing fund managers to trade anonymously without signalling their trading interest to the broader market.
“In speaking with our fund manager clients and bank liquidity providers, we realised they were both looking for an optimal way to trade with a single transaction with a single counterparty without broadcasting their trading interest or position to the rest of the market,” he says. “Fox provides real benefits in these respects, which we believe will enhance block trading and best execution in the foreign exchange market.”
He says the mechanism ensures that the bank liquidity provider that wins the trade is the only bank that knows a buy-side market participant is interested in trading and only the two counterparties know the trade took place.
This feature eliminates the “winner’s curse", he says, which occurs when multiple banks knowingly compete for a block transaction and the banks that are not dealt use the information that a large trade took place to skew the interbank market away from the winning bank.
“In addition, by optimising liquidity and minimising information leakage, Fox discourages traders from simultaneously trading on multiple platforms to amass the full trade amount they seek. This practice creates a ‘phantom liquidity’ phenomenon and often results in a bank market maker getting hit on a price across multiple platforms simultaneously, which is undesirable from a liquidity provider perspective,” he says.
The company says eliminating these risks for both sides of the transaction will enhance block liquidity available through the new mechanism. In addition, executing the full amount as a single transaction will generate a single trade ticket, thereby reducing ticket charges and related costs and operational requirements.
Fox is the second product release this month by Advanced Markets. Previously, the firm released Algo X, an open source algorithmic engine aimed at fund managers and individual algorithmic traders, that runs within the Fortex 6 front-end.
Both Fortex 6 and the Algo X engine are supported by Advanced Markets’ DMA technology to its multi-bank liquidity pool.
Using Ago X, trades are routed to bank liquidity providers in less than 10 microseconds, Brocco says, which means trade executions often take place on the price that triggered the algorithm’s buy or sell signal.
Fortex 6 and the algorithmic engine are two of the latest product releases by technology firm Fortex in partnership with Advanced Markets. In June 2012, the two firms launched UltiMT, which enables banks and brokers to provide MetaTrader platform users with high-speed DMA to multi-bank FX trade executions.
Advanced Markets’ entire technology infrastructure was developed by Fortex as a single, unitary system, which it says minimises intersystem connection points that slow system performance and operating reliability.
“We have spent years optimising our DMA liquidity structure and operating environment to provide high-performance, low latency trade executions and market data for algorithmic FX traders,” says Brocco.