No Dealing Desk – The Next Blockbuster

“Welcome back Kotter”

We noticed that an old favorite of ours has been getting more and more recognition in discussions about the best way to organize FX markets. I am talking about an organizational element that is sometimes referred to as ‘no dealing desk’, an ‘agency model’ or even’ straight-through-processing’ for retail FX brokers. (This latest descriptor might be the most confusing one, given the meaning STP has in institutional markets.) What is NDD and why does the term bubble to the top in numerous industry conversations these days?

“Take your stinking paws off me, you damn, dirty …”

No-dealing desk describes an order flow where a customer puts in an order with her broker. Instead of the broker touching the order – internalizing it, or filling it in the market on his terms – the order is passed on without interference to a third party that executes it in the market for the best price available at that moment. The beauty of this arrangement is that customers will always get a fair execution. Brokers obtain new leverage to increase their market share because they no longer have to worry about exposure and related capital requirements that limit how fast they can grow. They can really turn on their marketing machine. Last but not least, regulators are at ease because there is less room for a possible conflict of interest between trader and broker/market maker. Also, brokers tend to be more upfront about their pricing models (usually a fee, a spread or a mixture of both). For regulators, such a transparent market is easier to regulate. Continue reading No Dealing Desk – The Next Blockbuster

Taking a Fresh Look at DMA

About five years ago, we took the concept of direct market access (DMA) from the world of equities and introduced it to the world of FX. We did so because we had witnessed its benefits of neutral execution in equity markets and knew it would be advantageous to FX market participants as well. As we had predicted, DMA quickly enjoyed wide market acceptance, in part because it has something to offer for everyone. Integral hasn’t stopped innovating, however. While others still view DMA as just a better technology to achieve connectivity, Integral views it as a philosophy to organize today’s market into one that has less friction, more transparency and lower barrier to entry.

Not all DMAs are created equal

The (wrong) mental model of most DMA providers today is using technology to deliver a connectivity network between buy-side participants, market makers and other liquidity venues. I call this process, providing DMA services at level zero.

Integral has arrived at a much broader understanding of DMA, one that goes far beyond the connectivity level. Our model is a combination of functionality that resides partly in FX Grid®, Integral’s multi-sided trading network, and partly with on demand services that run on top of it. On the level of FX Grid, we added multiple price discovery aggregation mechanisms, credit line management, netting, straight-through-processing for pre and post trade processes, verification of execution with QOS, and most importantly, monitoring services for connectivity and rejection rates. A set of user-controlled algorithms for blending, splitting and spreading liquidity for internal and external users rounds up the service. Continue reading Taking a Fresh Look at DMA