It seems that the institutional FX market is as competitive now as ever. Integral, Currenex and Cognotec (First Derivatives), FXAll, Hotspot (and EBS and Reuters to some extent, although these are becoming somewhat obsolete) are competing to provide the best technology and deepest liquidity.
I totally agree with Integral’s Harpal Sandhu view that the future of institutional forex is to develop into several independent but interconnected venues (liquidity pools if you will). I believe that the same will eventually happen with the retail Forex as the largest brokers, such as FXCM, are already liquidity providers to smaller ones. I don’t think it’ll take too long for some of the large brokers (especially those with superb technology) to start creating their own liquidity venues as they evolve from providing only trading services to providing liquidity and technology to smaller market participants.
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Eventually I think this will completely redesign the market and several liquidity venues will completely dominate this market. Some will be larger (for larger traders and brokers) and some smaller for (mid-large traders). This will contribute immensely to pricing and technology competition and these venues will be much easier to regulate – perhaps this will spark the rise of liquidity Self Regulatory Organizations – SROs.
In the meanwhile, each technology/liquidity provider is trying both to connect as many clients as possible and improve the technology (execution and latency). When this process is complete (most of traders will be connected to this or that venue) the consolidation process will kick in and we’ll see a few more mergers of the FXAll/LavaFX kind.
Lately First Derivatives has acquired Cognotec’s advanced technology in a blitzkrieg move and two months later signed a first Japanese client. Yesterday Integral signed a similar agreement with ODL (which already offers Currenex, Hotspot and FXAll/LavaFX). To the best of my knowledge, Integral and Cognotec’s technology is better however Hotspot and FXAll offer deeper liquidity at this point.