A couple of weeks ago, Harpal Sandhu, CEO of Integral Development Corporation, posted his take on the recent proliferation of FX trading platforms. Quoting other industry sources that say a consolidation is inevitable, Sandhu argues that the number of platforms will increase and not decrease. The body of the post meant to support this argument is a little confusing as Sandhu seems to equate new business ventures built on different markets and models with an installation of single instances of a platform such as Integral’s. I can’t say I understand where Sandhu is going on this.
The sole argument I believe that was put forth comes at the end of the post where Sandhu predicts that the 40% of the FX market that remains non-electronic will go to the new platforms:
“My prediction is that only a small amount will go to the traditional platforms, and that the vast majority will go to new ones.
And I am convinced that this prediction will stand the test of time. You can quote me on that.”
Good. I just did.
The presumed follow on to this prediction is that there is more than enough room for the new players. While I think the base prediction is a pretty safe one, I don’t agree with its application to the premise of non-consolidation. In order to really predict the future of FX platforms one has to break down the marketplace into buy side and sell side, wholesale and retail. How much of the 40% (or the 60%) is in retail and how much is interbank or institutional-bank? Then one has to look at the platforms and determine their target markets. Because if there is a serious overlap of markets then there is a limiting factor of desktop real estate and trader attention. In short, traders have limited desktop availability and limited interest in proliferating platforms across their desktop. And providers do not have the appetite or resources to support every platform out there – especially if each platform is delivering smaller and smaller slices of the FX pie. This of course means that spreads on some platforms will widen which will further increase consolidation pressure. In the end the landscape seems a bit more complex and if past history is any guide (especially in light of the recent Reuters takeover of FXall) – consolidation follows proliferation and does seem inevitable.