Internalising flow threatens brokers

To date, only a handful of major dealers have come some way towards achieving this. Those thought to have the most advanced liquidity management systems in the industry include Bank of America, Barclays Capital, Deutsche Bank and Lehman Brothers. As an indication of how successful these systems are, rumour has it that BoA has been able to internalise 95% of it electronic volume, and in so doing could avoid going to EBS and Thomson Reuters for all that business.

There were already some indications that this would occur last year when it emerged that banks were looking at developing direct APIs with each other - by-passing the brokers. Once the maths is done, the conclusion may be drawn that if you're long it may be better if someone buys from you directly at a price that may not be ideal, and can still be cheaper than selling it through brokers.

A bank's success at this depends on how uncorrelated its flow is, or its ability to attract flow. If a dealer has a smart price out there that attracts flow, then it can do this more cheaply, for example.

Robin Poynder, head of treasury at Thomson Reuters, said in response that the FX market is a growing one, and internalisation has an important role to play for customer flow coming into institutions from the growing number of parties trading FX. "However, external interactivity between counterparties also continues to grow rapidly, and as experts and market leaders in the FX space Thomson Reuters is committed to this growing market, where we expect the growth trend to continue."

A spokesperson at Icap said EBS offers access to one of the largest liquidity pools in the world. "However, it is vital that we continue to innovate and offer our customers the best possible liquidity and service. At Icap we are constantly working on expanding our service offering - through new products, enhanced technology, and post-trade services."