The agnostic tendencies of aggregation

In the past couple of years, we have seen rising use of aggregation systems, in light of the proliferation of trading venues, provided by third-party trading technology vendors such as FlexTrade and Portware. More recently we have seen banks attempt to replicate these systems by developing aggregation packages or agency packages for clients to deal with each other through the bank. An agency package differs from an aggregation package, as the bank provides a prime brokerage wrap around it so the client deals in the bank's name. Meanwhile, with an aggregation package, the client deals in their own name.

So far, we have seen Deutsche Bank release DB MarketPlace, while Citi and Barclays Capital are thought to be developing similar solutions for clients. The idea is that the bank acts as a central market-place for its clients to deal with the bank and with other sources of liquidity, whether they be other market sources or other client sources.

What was interesting was a comment from Justyn Trenner, chief executive of client strategy firm ClientKnowledge, who took the discussion one step further. He said a head of trading had told him that given the cost of brokerage on electronic broking platforms, it may make sense to get a direct application programming interface (API) to a liquidity provider. This, of course, is dependent on whether the pricing from the liquidity provider is the same. Of course.

This development is interesting for two reasons. First, the industry may be reaching some form of utopia where banks are essentially looking out for each others' wellbeing. Second, and in some respects more seriously, it could mean the disintermediation of electronic brokers such as Icap and Reuters.

By aggregating liquidity sources, essentially a trader can not only compare prices, but also compare costs for trading on a particular venue. In fact, a speaker on a panel said one effect of aggregation is it introduces an aspect of agnostic trades. Currently, for example, traders have an almost innate tendency to trade on EBS and Reuters. According to this speaker, as time goes on traders will get more platform-agnostic when they trade. But direct APIs to a bank liquidity provider?