James Sinclair<br />CEO, MarketFactory<br />jsinclair@marketfactory.com<br />Platform Diversity: FX, Equities and Fixed In...
Today’s Discussion<br />Issues we don’t have in FX<br />Opportunities specific to FX<br />What does this mean for the plat...
Issues we don’t have in FX<br />
Throughput Not As Acute<br />Source: International Securities Exchange Penny Pilot Analysis 9, Dec 2010<br />
Symbology Not As Broad<br />Source: BIS 2010 Triennial FX survey; Google Finance equities volumes Sep 2010 <br />
Less Regulation<br />Nasdaq <br />OMX PSX<br />RegNMS:<br />NYSE <br />Amex<br />ISE<br />NSX<br />NYSE<br />Nasdaq<br />B...
Little Rebate Trading<br />Unlike US  equities, very little rebate trading <br />Perhaps because tick size is large relati...
In Addition….<br />LOW PROFILE <br />For the world’s  largest  market  - we attract little press as the market has self-re...
Opportunities Specific to FX<br />
Global and Fungible<br />London<br />$725bn<br />per day<br />Asia<br />$375bn<br />per day<br />New York<br />$400bn<br /...
Fungible also in Instrument Construction<br />Unlike securities markets, but like other cash markets, synthetic instrument...
Other Key Notes<br />Credit instrument<br />Natural interest arises from non-FX activities.  Ultimately, sustained exchang...
So, what does this mean for the platforms?<br />
They’re All Different<br />Different :<br />Location(s)<br />Price distribution frequencies<br />Depth of book and indicat...
Contrast with European Equities<br />Source: Federation of European Securities Exchanges<br />
Interdealer FX Market in 2003<br />CME<br />EBS<br />Reu<br />DB<br />Citi<br />Prop Shop<br />Prop Shop<br />Prop Shop<br...
Interdealer FX Market in 2011<br />Prop Shop<br />Prop Shop<br />Prop Shop<br />Not shown:<br />Futures brokers<br />Retai...
But Note…<br />They are additive.  New platforms in FX are not identical.  They attract new participants & new strategies ...
Bringing It All Together<br />
Complexities in Equities and FX are Inverted<br />High technology needs vs. high market structure knowledge needs<br />Equ...
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MarketFactory on Platform Diversity: FX, Equities, and Fixed Income.

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James Sinclair, CEO of MarketFactory, speaks on the topic of Platform Diversity at the Profit & Loss and Trading Cross Connects event on February 10th, 2011 in NYC.

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MarketFactory on Platform Diversity: FX, Equities, and Fixed Income.

  1. 1. James Sinclair<br />CEO, MarketFactory<br />jsinclair@marketfactory.com<br />Platform Diversity: FX, Equities and Fixed Income<br />
  2. 2. Today’s Discussion<br />Issues we don’t have in FX<br />Opportunities specific to FX<br />What does this mean for the platforms? <br />
  3. 3. Issues we don’t have in FX<br />
  4. 4. Throughput Not As Acute<br />Source: International Securities Exchange Penny Pilot Analysis 9, Dec 2010<br />
  5. 5. Symbology Not As Broad<br />Source: BIS 2010 Triennial FX survey; Google Finance equities volumes Sep 2010 <br />
  6. 6. Less Regulation<br />Nasdaq <br />OMX PSX<br />RegNMS:<br />NYSE <br />Amex<br />ISE<br />NSX<br />NYSE<br />Nasdaq<br />BATS<br />CHX<br />Nasdaq <br />OMX BX<br />EDGX<br />CBSX<br />NYSE<br />ARCA<br />Plus dark pools (<15%)*<br />FX ECNs are not constrained and have incentive to differentiate themselves.<br />* Source: Rosenblatt Securities analysis<br />
  7. 7. Little Rebate Trading<br />Unlike US equities, very little rebate trading <br />Perhaps because tick size is large relative to cost of execution (even after EBS upcoming changes)<br />
  8. 8. In Addition….<br />LOW PROFILE <br />For the world’s largest market - we attract little press as the market has self-regulated well<br />One exception<br />
  9. 9. Opportunities Specific to FX<br />
  10. 10. Global and Fungible<br />London<br />$725bn<br />per day<br />Asia<br />$375bn<br />per day<br />New York<br />$400bn<br />per day<br />Chicago<br />$100bn<br />per day<br /> Source: MarketFactory analysis based on BIS Triennial FX Survey<br />
  11. 11. Fungible also in Instrument Construction<br />Unlike securities markets, but like other cash markets, synthetic instruments are identical to their traded counterpartse.g. cross currencies: EUR/JPY<br />EUR/USD<br />USD/JPY<br />EUR/JPY<br />
  12. 12. Other Key Notes<br />Credit instrument<br />Natural interest arises from non-FX activities. Ultimately, sustained exchange rate moves are because of:<br />Cross-border capital market activity, FDI, trade <br />Substantially a principal market (and likely to stay that way as the banks facilitate the natural interest)<br />Doesn’t fall in value (you’re just on the wrong side)<br />High growth in retail sector<br />
  13. 13. So, what does this mean for the platforms?<br />
  14. 14. They’re All Different<br />Different :<br />Location(s)<br />Price distribution frequencies<br />Depth of book and indicators of depth<br />Info about the quotes that make up a price level<br />Tick size<br />Info about deals and amounts done in the market<br />Some have Last Look<br />Upgrades are frequent<br />Different platforms for different currencies, purposes<br />Understanding of each platform required<br />Opportunity<br />
  15. 15. Contrast with European Equities<br />Source: Federation of European Securities Exchanges<br />
  16. 16. Interdealer FX Market in 2003<br />CME<br />EBS<br />Reu<br />DB<br />Citi<br />Prop Shop<br />Prop Shop<br />Prop Shop<br />Prop Shop<br />BoA<br />JPM<br />Prop Shop<br />HS<br />UBS<br />Dres-dner<br />FXall<br />CX<br />Real Money, Corporates<br />Structure akin to US treasuries: Interdealer: Brokertec, eSpeed;<br />Customer: Bloomberg, Tradeweb<br />Still similar + GovEX.<br />
  17. 17. Interdealer FX Market in 2011<br />Prop Shop<br />Prop Shop<br />Prop Shop<br />Not shown:<br />Futures brokers<br />Retail<br />Prop Shop<br />EBS<br />CME<br />DB<br />Reu<br />Citi<br />Barx<br />Prop Shop<br />HS<br />Integral<br />BoA<br />CX<br />FXall<br />JPM<br />UBS<br />FXall<br />Com-merz<br />CX<br />Execution through ECNs, banks and some funds<br />Real Money, Corporates<br />
  18. 18. But Note…<br />They are additive. New platforms in FX are not identical. They attract new participants & new strategies are launched. Market share no longer as relevant. <br />Liquidity rarely moves away from an ECN in absolute terms (exceptions: small markets, TIPS, TBAs)<br />
  19. 19. Bringing It All Together<br />
  20. 20. Complexities in Equities and FX are Inverted<br />High technology needs vs. high market structure knowledge needs<br />Equities<br />2 million msgsper second<br />Thousands <br />Real-time broadcast<br /> Tick by tick – every tick!<br />Thousands / second<br />Centralized markets<br />Heavy – e.g. Reg NMS<br />Standardized <br />NBBO<br />Established; low difficulty<br />Full depth of book<br />None b/c of CCP<br />Order routing from point of order submission <br />Attribute<br />Throughput<br />Symbols<br />MD Frequency<br />Order Submission<br />Fragmentation<br />Regulation<br />Market Structure<br />Price Discovery<br />TCA<br />Transparency<br />Price Filtering<br />Order Routing<br />OTC FX<br />2 million msgper day<br />20 pairs; 66% of FX in 6 pairs<br />Real-time custom snapshots<br />Max 100 orders per second<br />Globally fragmented venues<br />Light – isolated venues<br />All non-standard; all bespoke<br />Venue specific<br />Difficult – lack volume info<br />1-3 levels of depth common<br />Heavy b/c of bilateral credit<br />Complex decision process<br />Complex<br />Easier<br />Easier<br />Complex<br />

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