In this article, We learn about "Direct price flow ".Let's Go!
A Direct price flow means that liquidity providers provide prices that can be executed directly with another party.
The transaction does not go through a third-party intermediary.
Both parties to a transaction know who they are dealing with.
As a model, live streaming provides an alternative to live transactions.
The advent of direct, continuous bilateral pricing flows is slowly but surely beginning to shake the market's perception of electronic trading.
Direct Streaming allows everyone (traders, e-market makers and buy-sides) to get most, if not all, content from the CLOB and RFQ markets in one place.
As an evolution of ’s current execution protocol , direct price streaming is interesting for broker-dealers for the following reasons:
- It allows them to automate transactions , helping them manage costs.
- It allows them to maintain a bilateral relationship with their clients so that liquidity provision can be linked to their profitability.
What is Direct Price Stream?
In its simplest form, direct streaming is when a trader or electronic market maker constantly sends its clients the prices and sizes at which they are willing to buy or sell currencies.
Different sizes offer different prices.
Customers receive tailor-made prices and sizes without submitting a request, thus eliminating information leakage from the buyer's perspective before the transaction.
When liquidity providers are willing to offer fixed prices, the risk that customers may express their trading intentions when trading is also eliminated.
Things get more interesting and useful when clients aggregate streams from all liquidity providers.
The result is effectively a custom-built central limit order book with instant, actionable liquidity.
It only includes counterparties that clients know and agree to trade with, so the prices they see are tailored to their relationship with those counterparties.
To take this idea a step further, clients can also aggregate liquidity from anonymous CLOB markets with direct flows they receive from liquidity providers, creating more Complete Picture Market Liquidity .
While some of their direct liquidity providers may also trade in these order books, this enables them to collaborate with other market participants with whom they have no relationship (albeit anonymously).
Platform disintermediation?
It has been suggested that if the use of direct price streaming continues to grow, it may replace electronic trading platforms.
However, history tells us that this is unlikely.
It didn't take long for US stock traders in the late 1990s to realize that managing direct contact with each counterparty to transmit orders and execute was inefficient, and they quickly sought out aggregators to ease the burden.
platforms have stepped in to facilitate the distribution and aggregation of live broadcasts.
They are particularly suited to this task because they have existing connections with both liquidity takers and makers, saving time for everyone involved in operations and legal work.
They can also provide some enhancements to the model that would be difficult to achieve if the stream aggregation was managed by each end user.
For platforms registered as broker-dealers or entering into agreements with broker-dealers, liquidity creators and takers can choose to trade with each other anonymously.
By submitting their preferences to venues in advance, clients can still rest assured that they are only transacting with approved counterparties and that they still receive a “relationship price”.
But by using the platform's broker-dealer as an intermediary, allowing execution to be done anonymously, they can further limit information leakage.
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