The Single-Dealer & Multi-Dealer Platform ecosystem. Interview with Roger Lee, Global Head of Sales, SGX FX
A significant shift is underway in eFX trading. As banks grapple with tightening budgets and increasing regulatory pressure, the traditional model of single-dealer client facing platforms that co-exist alongside and compete with multi-dealer alternatives, is being considered in more detail. In a recent conversation at TradeTechFX in Amsterdam, Roger Lee, who looks after FX distribution at SGX FX, offered his thoughts on this changing landscape and the challenges that Single-Dealer Platforms now have.
Photo: Vinay Trivedi (Chief Operating Officer, Sell-side Solutions, SGX FX) & Roger Lee (Global Head of Sales, SGX FX).
The Single-Dealer Platform arena
The eFX trading space has become increasingly crowded in recent years, with a proliferation of single-dealer platforms (SDP) each vying for a slice of the institutional market. Lee explains the dynamics of this environment: "The SDP space has its own place in the market, but it can be challenging from a budgetary standpoint depending upon the scope of requirements, so it is all about how you go about getting to that end goal, and delivering the solution to the end clients. The MDP offering sits in a parallel space, lending itself more so to a slightly different spectrum of clients," he notes.
Lee is well-placed to comment on both the single-dealer and multi-dealer venues, having worked in eFI at Salomon Brothers, as well as Citi in eFX Sales, and finally moving into the fintech space at TradingScreen (a multi asset / multi broker EMS) for 12 years, during which time its FX business, known as ‘BidFX’, spun off as it was acquired by Singapore Exchange or SGX. He is now Head of Sales for SGX FX which encompasses the ‘buy-side’ focused BidFX platform, as well as the ‘sell-side’ MaxxTrader platform. His team also actively engages with SGX’s CurrencyNode team, an anonymous FX marketplace that is a segregated & regulated business of SGX. (Some background on SGX FX; in 2020 SGX fully acquired BidFX from TradingScreen, followed by MaxxTrader from Flextrade in 2021. CurrencyNode was launched by SGX in 2022, leveraging a centralised prime broker model venue.)
When Lee first started at TradingScreen, their FX platform was seeing a few billion dollars of FX volume a day. Fast forward 13 years on, the combined FX businesses of SGX FX have seen recent peaks of over $260 billion in Average Daily Volume (ADV). “It’s true, we’ve grown super-fast,” Lee says. In that time the team has also grown, from a group of 10-15 people to a number close approaching 300 now, a large proportion of whom are technologists, from developers, API integration specialists, GUI developers, & infrastructure experts. “It takes a lot of educating by our client facing teams to educate the community about platform architecture, how it has looked historically and how it should really be done”, alluding to what has been put in place by SGX FX, leveraging the main co-location hubs of New York, LD4, SG1 and Tokyo, “…providing a user with a local price, wherever he or she sits, is a must have nowadays”.
The Financial Realities of Single-Dealer Platforms
Lee advocates that there is place in the market for the single-dealer platform, but caveats that ‘building internally’ poses its own challenges. "It comes down to the well-known adage of build-versus-buy. More banks than not find the bar is too high to go it alone," Lee observes. In an era of tightening margins and increased scrutiny on both headcount and technology spending, the substantial investment required to develop, maintain, and continually upgrade a trading platform that is built in-house is becoming increasingly challenging.
There are multiple rational justifications for banking institutions and bulge bracket brokers to turn their focus to ‘external’ technology specialists/ partners, whose main directive is to offer both front-end solutions, but also the underlying infrastructure or ‘backbone’ as Lee puts it. This strategic pivot allows banks to leverage cutting-edge multi-asset technology without the hefty costs and organisational challenges of in-house development.
Lee estimates that by outsourcing these technology needs, most banking institutions will “save significantly”, given that some top tier banks will spend anywhere between $10 to $50 million on annual maintenance, depending on size, scope & complexity of the platform. "It's very difficult to normalise what spend on maintenance averages out at," he notes, underscoring the significant financial implications of this decision. Lee elaborates that “since the scope of a sell side offering can vary widely, and there are many potential layers to what constitutes an ‘end product’, one can’t generalise”. By partnering with firms that specialise in pricing engines, order and risk management, sales interfaces, client facing ‘White Label’ interfaces or mobile technology, then “banks not only reduce costs, they also benefit from continuously advancing technology that we’re bringing online through our network of banking clients, leveraging technology that has been proven time and time again. Most of all, it allows ‘go to market’ timing to be met.”
“ regulation is only going one way, with the likes of MiFID, pushing the market to greater transparency and best execution practices ” |
The Multi-Dealer Platform Arena
Moving over to the ‘Multi-Dealer Platform’ (MDP) space, market dynamics here are more led by the regulatory space. Lee points out that "regulation is only going one way, with the likes of MiFID, pushing the market to greater transparency and best execution practices”. So where does SDP technology and MDP interact in this scenario? Lee discusses an example: “an underlying client of Bank XYZ decide that they want to start competing their flow with other LPs (Liquidity Providers) so XYZ needs to ensure that his technology partner allows their underlying clients to access XYZ liquidity in a whole series of potential platforms, and not just on its own SDP offering. This is where the likes of MaxxTrader will provide XYZ with what is known as ‘adaptors’ (effectively gateways) to MDPs such as BidFX”. So now we see how the combination of SDP and MDP technology interact, “When it comes to choosing a trading technology partner, it’s very much a modular approach, the banking client gets to choose from a whole host of offerings for a single bank trading technology but also multiple other offerings such as gateways, as and when required, to MDPs”.
Sell-side focused technology offerings (like MaxxTrader) have over the years built up an arsenal of potential solutions for the community, based on varying requirements of these institutions across the globe. Lee explains, "The marketplace for both pricing engine and white label services is not going away, it’s just evolving and becoming more sophisticated as technology evolves. The use of data is a classic case in point, where the likes of machine learning has ramped up analytical output". An example of such an offering is ‘Maxx AI’, an award-winning solution that allows traders to make quicker decisions, by leveraging large sets of FX data, analysing pricing streams, user activity, execution quality, market impact, and profitability, and transforming it all into bite-size insights which are presented in digestible stories and charts.
The Corporate Shift to Multi-Dealer Platforms
One of the most notable trends highlighted by Lee is the increasing adoption of the multi-dealer platforms by the larger corporate client base. Traditionally, many corporates relied on relationships with a handful of banks, where interaction was a combination of voice and electronic, often via SDP. This approach however is increasingly being questioned, due to areas like a lack of STP (Straight Through Processing) for voice trading, but increasingly more due to the fact that “the client now demands higher proof of best execution”, as Lee explains.
"Our team (SGX FX) goes in and helps them, asking them about their pain points and wish lists,” Lee explains, describing how his team typically works in a more consultative fashion. By aggregating liquidity from multiple sources, multi-dealer platforms offer traditional asset managers, banks, corporates and indeed hedge funds the potential for better pricing and execution. “Clearly the solution needs to be operationally tight, but what clients really like, which is de facto with our buy side solution BidFX, is tailor-made liquidity, from each of their LPs. The client’s relationship with their banks is therefore direct but bespoke, whilst demonstrating best execution to their own stakeholders. That’s the nirvana that the institutional buy side community is gravitating to.”
According to Lee, MaxxTrader (for sell-side) and BidFX (for buyside) represent the next generation of ‘all-encompassing’ FX trading and workflow solutions, offering both plug-and-play or custom solutions that surpass traditional venues that might have been leveraged historically. As an example, Lee emphasises some of the buyside platform's cutting-edge features:
🔹 Enhanced User Interface: BidFX boasts modern and intuitive user experience.
🔹 Interoperability: The platform offers seamless integration with other systems and workflows, an area that Lee believes is an area that will become popular soon.
🔹 Automated Processes:
▪️ Automated netting: Efficiently consolidating multiple trades to reduce overall exposure.
▪️ Automated execution logic: Intelligently routing orders based on pre-set parameters.
▪️ Advanced Visualization: Offering clear, graphical representations of liquidity peaks, troughs, strengths, and weaknesses for both clients and banks.
🔹 Transparency: comprehensive reporting on bank quotes, execution times, and reject rates.
🔹 Liquidity Provision Analytics (‘LPA’): A proprietary tool that has evolved from Transaction Cost Analysis (TCA), allowing clients to analyse tick data and make informed decisions on liquidity curation.
🔹 Liquidity Manager: Enabling clients to customize their LP selection based on currency pairs, trade sizes, and deal types.
🔹 Algo Wheel: Similar to what has been leveraged in the equity space, this feature allows rotation and performance comparison of different algos, promoting or relegating them based on effectiveness.
🔹 Bank Algo Library: Access to over 300+ algos from one screen, including every bank and non-bank that has an FX algo suite.
🔹 Proprietary Order types: both MaxxTrader & BidFX offer a variety of order types.
This multi-layered approach to best execution is particularly appealing in the current regulatory environment. With increased scrutiny on FX trading practices, corporates are under pressure to demonstrate that they are obtaining the best possible execution for their trades. Multi-dealer platforms, with their ability to aggregate quotes from multiple sources and provide detailed execution analysis, offer a compelling solution to this challenge.
The Future of FX Trading Platforms
Looking ahead, Lee sees significant growth potential for both multi-dealer platforms focusing on the buyside marketplace as well as the use of technology partners for those sell-side institutions who want to be able to ‘go to market’ without a heavy lift. With the manifest growth of SGX FX's combined businesses, the appetite and future for these electronic solutions appears clear. "We've actually moved into a top 3 position in the multi dealer space," Lee notes, “our trajectory is actually unparalleled”.
This growth is not just in volume but also in the sophistication of the offerings. Lee highlights the development of ‘CurrencyNode’, an anonymous marketplace for FX trading built on MaxxTrader technology. ‘C-Node’ as it is more known as in the market, is particularly focused on emerging market currencies, having initially leveraged the relationship with most of the Asian regional specialist LPs that have relationships and connections with SGX. “There is particular focus and strength in the non-deliverable forward (NDF) space, where depth of liquidity can be more challenging to source through traditional channels”, as Lee puts it.
Conclusion
While single-dealer platforms, especially those from top-tier banks, are likely to remain a defined part of the FX trading landscape, the banking industry appears to be tilting towards leveraging trading technology partners for their single bank distribution capability, whilst the buyside community migrates progressively away from the use of voice and chat / IB towards the multi-dealer capability. From the sell-side perspective, as Roger Lee succinctly puts it, "It comes down to a simple factor, one’s budget". In an era of tightening margins, increasing regulatory scrutiny, and growing demand for efficient, transparent trading solutions, the comprehensive offerings of sell-side focused technology is becoming increasingly attractive. In summary, Lee comments, “We see that outside the truly bulge bracket space, there is diminishing appetite to build internally, but rather to work with proven sell-side technology specialists, to save time, effort and of course expenditure”.
The future of FX trading seems to be one of increased aggregation and efficiency, with traders able to access a wider pool of liquidity through sophisticated, multi-faceted platforms. As this trend continues, it will undoubtedly reshape how relationships between banks, the buyside community and technology providers evolve. The coming years promise to be a period of significant evolution in the FX platform ecosystem, with a carefully crafted interaction between single bank & multi bank technology working more seamlessly at the forefront of this change.
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