Back to the Future: A Renaissance for FX Single Dealer Platforms?

The importance of relationships in FX has proved central to institutional trading in recent months. Not that relationship trading ever went away in the FX markets. However, in a clear ‘Back to the Future’ development, the role of the single dealer platform (SDP) is once again having a resurgence.

The idea of an SDP renaissance is backed up by data from the most recent UK and US FX committee turnover surveys, which showed an uptick in volumes traded on SDPs, increasing to 21.1% of total turnover ($163.6 billion) in April ‘20 from 14.1% in April ‘19 ($122.9 billion). While this increase is in part attributable to a change in reporting style it should come as no surprise, given the current environment, that a bank’s ability to get its prices and services out under its own brand as far and wide as possible has become critical to building relationships.

As a technology provider offering solutions across all eFX distribution channels; our unique vantage point allows us to recognise that while we’re witnessing a ‘Back to the Future’ development, the future for the SDP is looking very different from its previous incarnation in bygone years.

Yes, trading on SDPs draws on a desire for pricing from established relationships, certainty of execution, and reduced information leakage. But what constitutes a viable SDP offering and how a bank delivers this to a client has changed beyond recognition.

These days, corporate and institutional customers want a more advanced service beyond just access to liquidity. They now expect a sophisticated offering that matches the quality of service experienced in other parts of their lives. Take for instance the success of platforms such as Netflix and Facebook, which are built on their slick user experience and regular software updates to keep the usability top of the range. We are all used to this type of environment in our private lives and now expect the same high level of functionality and brand experience in our professional lives.

Developments have meant that it is now seen as a prerequisite that a web UI runs on HTML5, that technology can seamlessly embed into other services offered by the bank, and a platform is readily available via mobile device. It goes without saying that the execution offering itself must be high quality, with an EMS that supports a wide variety of order types and instruments on a user-friendly interface. Additionally, a top of the line SDP now requires robust TCA and analytics to be available as supplemental services, so that clients are enabled to not only achieve best execution, but also  demonstrate it after the fact.

An interesting paradigm shift is that clients now also expect advanced technology from their banks to enable the digitisation of their own eFX business. Take cloud technology for instance. Banks can play an important role by offering eFX technology in a cloud environment, so their own clients can meet their personal business requirements to automate and digitise workflow while also having seamless access to the latest and greatest trading tools.

It is important to remember that delivering a unique experience is what will differentiate your service from someone else. A good technology partner offers the tech stack needed to achieve this, while giving you the time and resource back to focus on extending your brand and fostering those all-important relationships – all while avoiding the high-costs and technology risk associated with building in-house.

We have seen how the COVID environment has greatly accelerated eCommerce and caused a greater swing towards operating online. We have also seen that the winners in retail are the ones who have either always had a strong e-commerce franchise, or have wisely spent the past few months bulking up their ability to serve online consumers. Relationship trading in the institutional FX market is no different.

While the current environment is unprecedented, I think it is fair to say that the importance placed on electronic trading channels will continue unabated even as environments change going forward. A consistent requirement then is to have the right infrastructure and technology stack in place to meet clients wherever they want to trade and by offering a higher quality of service to grow relationships. After all, irrespective of the current trading trend, building relationships and growing your business will always be an imperative.