As always when I write something vaguely controversial I feel the need to follow up on last Thursday’s column – because some people either got the wrong end of the stick on what I was trying to say or I feel the even greater need to beat them down on their views of last look. […]
Tag: liquidity providers
The use of a last look window by market makers will decrease in 2018, but don’t expect the practice to disappear any time soon, says Galen Stops.
If you’re sick of reading endless articles and hearing lengthy debates at conferences regarding last look, then the first part of this prediction will be music to your ears: in 2018 the industry conversation will move on from this topic.
This prediction comes despite a second one, that last look will not disappear in 2018.
Yes, XTX Markets made headlines by committing to a zero hold time on their FX trades – not to be confused with offering firm liquidity – while other market makers have made more private assurances of a similar kind.
A study released by Deutsche Bank seeks to challenge the assumption that having more liquidity providers in an aggregator inevitably leads to better execution.
Aggregators are popular in the FX market, enabling trading firms to routinely put multiple liquidity providers in competition and then transact with the one offering the best price. Being able to consolidate liquidity, in the form of bid and offer prices and amounts, from various sources into a single, consolidated order book is particularly valuable in an OTC market with no centralised exchange.
“But in a market where the terms of trade are privately negotiated and the liquidity provided is bespoke to the trader, deciding on a suitable aggregation setup is not a trivial task,” according to the report, titled “Execution in an Aggregator”.
Shortly after Citadel Securities won the Best Market Maker in Major Currencies category at Profit & Loss’ The FoXys Reader’s Choice Awards, Kevin Kimmel, global head of e-FX at Citadel Securities, sat down to discuss what firms want from a modern liquidity provider.
“I think it’s important for market makers to customise their liquidity to each individual consumer,” says Kimmel.
Although he acknowledges that “market impact” has become something of an industry buzzword recently, Kimmel maintains that there truly is a large segment of the liquidity consumer universe that is looking to trade with firms that are willing to warehouse risk because it will help minimise their market impact. There is also though, he says, clients that are much more aggressive in accessing the market that just want tight prices and a high fill rate.
The top five FX dealers are losing market share, according to a new report from Greenwich Associates.
Although the world’s five biggest FX dealers still capture a massive 44% of global market share in aggregate, according to the research, that proportion is down from 48% last year and from 53% in 2013.
The report identifies several trends that are driving these changes. It says that while top-tier dealers have been narrowing the scope of their product, regional and client coverage, FX investors continue to increase their trading via multi-dealer platforms, which create a more level playing field for liquidity providers.
Giovanni Pillitteri, global head of foreign exchange trading at GTS Securities, talks to Profit & Loss deputy editor, Galen Stops, about how his firm takes a holistic view of financial markets in order to build effective FX strategies.
In recent years there has been a well-documented trend of non-bank market makers expanding out of their traditional core equities business to trade FX. GTS Securities is one such firm, with Pillitteri explaining how its equities expertise can help inform and improve its FX strategies.
“We look at the various asset classes in a very holistic way and there are multiple strategies that we have that has correlations between FX and equities,” he says.
That we are still debating the positive or negative impact of non-bank market makers on the FX market doesn’t surprise me – what does is the simplistic level of debate over what I consider to be a fairly complex issue.
Yes the big prime brokers could shut these firms down with a hefty rise in prime brokerage fees or a withdrawal of credit totally – that would send most of them back to where they first emerged – the cleared world with its very limited spot foreign exchange market opportunities.