SEF Aggregation – Approaches, Pitfalls and Solutions


Part III of the SEF series reflects on the business and technology challenges in presenting an aggregated market view of SEFs from a market data and execution perspective. It discusses the challenges in aggregating SEF liquidity pools in D2D and D2C markets for both order and quote driven venues and provides a reference solution for tackling this challenge.

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Concentrating on liquidity aggregation and execution management, it addresses a number of concerns which are particular to this market, including the question of how the quality of liquidity should be managed when tackling an aggregation and/or order routing project.

It focuses on market participants and how their trading models must adapt cope with fragmented liquidity. For the sellside, building up SEF aggregation capabilities is essential either for their own usage as a liquidity taker or provider, or to allow their clients to access liquidity on their single dealer platforms (SDPs).

For traditional buyside participants, who are allowed to trade directly on SEFs under Dodd-Frank, a decision has to be made whether they set up their own market access and clearing infrastructures, or continue to use the services of a broker/dealer to access liquidity and/or clearing services.

Published on: 26 Sep, 2012

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SEF Aggregation – Approaches, Pitfalls and Solutions — Table of Contents

  • 1.0 SEFS – The Basics
    • 1.1. DFA Moves Swaps to SEFs and Exchanges
    • 1.2. Three Categories of SEFs
  • 2.0 FIX Protocol is Ready to Support the Basic Trading Flow
    • 2.1. FIX Development – the Background
    • 2.2. State Management is not Supported by FIX
    • 2.3. FIX Limits Price Dissemination
    • 2.4. An Alternative – Native APIs for Comprehensive Functionality
  • 3.0 FPML Usage Is Expanding
  • 4.0 SEF Functional Assessment
    • 4.1. Four Trading Models Emerge
    • 4.2. Pre-trade Risk Management Perspectives
    • 4.3. Reference Data Management
    • 4.4. Market Data
  • 5.0 Non-Functional Assessment
    • 5.1. SEF Venue Connectivity
    • 5.2. Adaptors Enable Off-the-Shelf Connectivity to SEFs
    • 5.3. Mass Data and Order Transmission
    • 5.4. Connectivity via Co-location
    • 5.5. Data Centre Offerings
    • 5.6. Operability and Latency
  • 6.0 Considerations for On-Boarding
    • 6.1. Adaptor Buy versus Build
  • 7.0 Conclusion
  • 8.0 Appendices
    • 8.1. Glossary of Terms
    • 8.2. Table of Figures