Evolution towards transparency – the new wave of FX venues

Price discovery and trading models in electronic FX have evolved over the last decade, and current market structure supports multiple formats.

• RFQ/RFS: The most primitive method of price discovery and trading is the RFQ, a model that was adopted by first-generation client-to-dealer platforms. While most FX venues have evolved and added requests for streaming as well as order book information, FX Connect continues to dominate this particular marketplace, driven by its large asset management client base and its ability to provide support for extensive post-trade service, including netting.
• Streaming quotes/order book: Most FX ECNs currently support some combination of streaming quotes and order-book-style price discovery and trading. Despite the emphasis on anonymous, transparent trading, most FX ECNs have hidden markups and provide only limited post-trade transparency in terms of the counterparty; the identity of the prime broker is only disclosed if the trade has been prime brokered.
• Exchange style: Currently, only LMAX Exchange has launched a truly exchange-style trading model that provides pre-trade anonymity but full post-trade transparency. LMAX also does not support last look. Both Molten Markets and ParFX are slated to have price discovery and trading methods similar to LMAX Exchange.