At the SIFMA Conference earlier this month, there was a panel discussing “Execution Protocols”. Considering the topic & the fact it was held at 4pm after a long day, I guess the nods in the crowd were not necessarily in agreement……yours truly included…..zzzzzzz!

The compare was from FIX so, needless to say, it got a fair share of the airtime. However the most interesting topic discussed was certainly that of the provision of point-to-point services by OMS vendors…in this case LatentZero were represented on the panel & have made no secret of their plans to move this way (see the press release on LatentZero for their latest work in equities).

So what is meant by point-to-point? Essentially an OMS vendor will provide a link from a specific Bank liquidity provider into their Buyside client’s OMS. Thus providing a secure link between bank & client in order to execute trades, send trade ideas, axes etc. It must be said, this would be only for Tier-1 style clients. Those that have the resources to have such an OMS and, more exclusively, a “partnership” style relationship with their tier-1 counterparts.

Of the buyside representatives on the panel, one expressed a concern that they’d require 20 point-to-point links, so would prefer to stick with an ECN – the apparent solution here is that the OMS will “build” a hub……The other buyside had no issue with it, but not at the exclusion of ECNs, so long as they didn’t pay for it. Which raises the question, who does pay for it?

The OMS vendor will hardly do it for nothing, the buyside certainly have no intention of paying for any e-trading or related services – “otherwise we’ll just pick up the phone again” – which leaves the sellside. Now why would the sellside pay for these links when, currently, less than a handful could take full advantage of them anyway? Plus there will be the additional resource required to link to each client etc. I can see the benefits to the buyside (e-access to products & information not currently available, true STP etc) and OMS vendors (added stickiness, fees etc) but not so much to the sellside (“another” e-distribution channel).

If I’m honest, I quite like the concept of point-to-point for the secure delivery of trading in less liquid products, where the multi-dealer aspect isn’t so important, as well as the delivery of sensitive information such as executable trade ideas and axes. But if you are a liquidity provider, why not simply go via your single-dealer portal, be it stand alone or hosted in a Bloomberg or Reuters? Essentially this is where such a point-to-point link would start anyway. Will getting this information into a client’s OMS benefit the bank enough (via STP cost reductions – hopefully) to warrant paying an OMS vendor for the privilege of providing your liquidity to mutual clients?

The answer, to me anyway, seems no!