Happy New Year! - s3.eu-west-2.amazonaws.com...FXPrimus page 32 FXSpotStream page 7 Mobile Trading...

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Happy New Year!

As we go to press everyone seems to be talking about Bitcoin and there are lots of questions that spring to mind. Is it a bubble? Should we care? As it has no intrinsic value what non-speculative reasons are there to buy Bitcoin? What are the implications of Chicago’s two largest derivatives exchanges launching Bitcoin Futures contracts? What are the risks? When are the regulator’s going to step in? And so on. All important questions but the main thing that concerns us is the Blockchain technology that underpins Bitcoin. Many commentators are certain that Blockchain and Distributed Ledger technologies will change the way that the financial services industry operates forever and that includes the FX market. In this edition we have substantially expanded our coverage of the Blockchain and Cryptocurrency universe and during the course of this year we will be interviewing many of the pioneers who are looking to deploy the technology and find innovative applications for it across both Institutional and Retail FX markets.

This month sees the implementation of the second Markets in Financial Instruments Directive (MiFID II) and coupled with the FX Global Code, which was published in 2017, market participants have really had their hands full over the last few months in getting their businesses prepared to implement new best practice guidelines and regulations. It seems likely that one of the effects of MiFID II, with its requirement for increased transparency and best execution will be to influence trade execution in a way that increases the use of algorithms and also demand for new technology that can deliver improved TCA analysis especially for the buy-side. Our Execution Analytics feature on page 52 delves into this area in more detail and outlines why FX trading firms really do need to take best execution seriously. Although measuring execution performance in FX is an activity very much in its early days, much work is now being done to deliver effective new solutions.

As usual we hope you will enjoy reading this edition.

Charles JagoEditor

Welcome to

Winter 2018

Susan [email protected] Editor

Charles [email protected] (FX & Derivatives)

Charles [email protected] Manager

Helen [email protected] Manager

Michael [email protected] Manager

David [email protected] Manager

Ingrid [email protected]

John [email protected] Manager

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e-FOREXtransforming global foreign exchange markets

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4 | january 2018 e-FOREX

Luis SanchezExpert Opinion

Nicola TavendaleFX White Labelling

Dan BarnesEM Connectivity

John QuaylePlatform Profile

Anna ReitmanExecution analytics

Nicholas PrattInstitutional ECNs

David Mercere-Forex Interview

William EssexCryptocurrencies

Richard Willshere-FX in Australasia

David Vincent FX Aggregation

Frances FauldsSpecial Report

Joe MorganAPAC Markets

January 2018

CONTENTSNEWS STORIES22. In depth interviews with companies around the world that are making the news in FX

REGULATION & COMPLIANCE34. Taking the first steps towards a new market structure: Assessing the impact of MiFID II and the FX Global CodeWe explore in what ways the implementation of the FX Global Code and MiFID II directive may drive a gradual evolution in the way FX is transacted in the future between sell side and buy side firms.

PLATFORM PROFILE46. NatWest Markets Agile Marketse-Forex talks with John Quayle, Head of FX Algo Execution, NatWest Markets.

TRADING OPERATIONS52. Execution Analytics - Helping FX trading firms to take more informed decisionsAnna Reitman explores the complexities involved in measuring costs and execution quality in FX and why this process is not as straightforward as some people think.

FX e-COMMERCE & PLATFORMS66. Liquidity, Independence, Technology and Transparency: Why some Institutional FX ECNs still stand out from the crowdNicholas Pratt sets out to discover why some Institutional FX ECNs are appealing to increasing numbers of trading firms many of whom value anonymity, low-latency and the ability to use special order types.

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A ADM Investor Services page 32ADS Securities pages 2 & 3Aite Group page 54ANZ page 129Aphelion page 51ASIC page 127

B BarclayHedge page 120Barracuda FX page 26BestX page 54BlockEx page 114Bloomberg page 12BMFN page 182Broadridge Financial Solutions page 149BT page 187

C Cboe FX page 70CFH Clearing page 164

G Gold-i page 179Greenwich Associates page 20GreySpark partners page 58

I Ideal Prediction page 57IG page 75INTL FCStone Inside Back CoverInvast page 19Investor Trends page 132IS Prime page 79

J JFD Brokers page 73

L LCH page 142LMAX Exchange Outside Back CoverLykke page 111

M Match-Trade Technologies page 168

R5 page 157

S Saxo bank page 153Seabury page 14smartTrade Technologies page 69Solid FX page 171SPECTRE page 113Stater Global Markets page 122Swissquote Bank page 9

T 360T page 74Think Markets page 30Thomson Reuters page 17trade.io page 110Tradeworks ApS page 176Transaction Network Services page 184

U UBS Investment Bank page 13

Citi Inside Front CoverCMC Markets pages 10 & 11 CLS page 12Cobalt DL page 92C-View page 36Curex page 55

D Danske Bank page 43Deutsche Bank page 131Devexperts page 145Digitec page 24Dukascopy page 168

F FairXchange page 61FastMatch page 22FXecosystem page 183FXPrimus page 32FXSpotStream page 7

Mobile Trading Partners page 159Morgan Stanley page 5

NNatWest Markets page 46Nex Markets page 67Nex Optimisation page 142

O oneZero Financial page 147OTC Exchange Network page 104

P ParFX page 41Peter Lee Associates page 124Plugit page 173PrimeXM page 15

R R3 page 98


THE e-FOREX INTERVIEW80. Speaking with a devout exchange evangelist e-Forex talks with David Mercer, CEO of LMAX Exchange.

BLOCKCHAIN & CRYPTOCURRENCIES92. Cobalt closes in on Q1 launche-Forex talks to co-founder and chief executive Andy Coyne about Cobalt’s journey so far and its ambitions for the future.

98. R3 grows more ambitious as its network widense-Forex talks to head of external affairs Charley Cooper about the strengths of R3’s Corda platform and the potential of distributed ledger technology in FX and beyond.

104. OTC Exchange Network- Breaking new ground in ForexIn a recent edition of CIOReview, the publishers presented a list of the “20 Most Promising Blockchain Technology Solution Providers – 2017”. Included in the list was OTC Exchange Network. We report on what the magazine had to say about them.

108. Getting to grips with ICO’sWilliam Essex explores whether or not blockchain-based tokenised liquidity platforms will justify the “hype” and disrupt the traditional retail FX-trading model.

120. A-Z of BlockchainIn this our first article exploring the concepts behind Blockchain and Distributed Ledger technologies, Simon Taylor focuses on Smart Contracts.

MiFID II and FX Global Code

Execution Analytics

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Why some ECNs stand out from the crowd

e-FX in Australasia

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FX White Labelling services


REGIONAL e-FX PERSPECTIVE124. Australasia – An e-FX market in transitionRichard Willsher examines what factors are shaping the e-FX market across Australasia.

TRADING & TECHNOLOGY CLINIC 136. FX Aggregation – offering access to better liquidity and execution qualityBy David Vincent, CEO of smartTrade Technologies.

SPECIAL REPORT140. Collaboration, Cost and Complexity: Work continues on modernising Post Trade FX The FX market has always dealt with fragmentation and complexity but, as Frances Faulds asks, in order to modernise, does the industry need a wholly new model?

FX BROKERAGE OPERATIONS 152. Meeting exponential demand:Delivering FX Liquidity, Risk and Technology services across APAC marketsJoe Morgan reports on how increasing levels of disposable income and a culture of speculation is spurring exponential demand for retail FX trading services across Asia-Pacific (APAC) markets.

166. Reducing the IT burden; Discover what White Labelling services can offer your brandThe White Labelling model has undergone some profound changes to keep up with the pace of change, even branching out into new services, asset classes and geographies. Nicola Tavendale finds out more.

EXPERT OPINION182. Retail trading in China – some thoughts about IBs and the marketBy Luis Sanchez, CEO of BMFN.

NETWORKS, HOSTING & CONNECTIVITY184. Emerging Market connectivity: The key to capturing new FX trading opportunitiesReaching natural liquidity when trading EM currency pairs requires a connectivity provider that has the resilience and reach to provide access regardless of local environment as Dan Barnes discovers.

004 006 008 Contents.indd 3 15/12/2017 09:10

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LBC Express Holdings Inc (LBC), a leading logistics company in the Philippines, has adopted Bloomberg’s Foreign Exchange electronic trading platform (FXGO) to support its treasury function as it continues to expand and boost growth. A commission-free trading platform for both corporates and banks, Bloomberg FXGO provides access to liquidity from over 500 providers worldwide for financial institutions, corporations, money managers and hedge funds across all major FX instruments including

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LBC Express adopts Bloomberg’s FX Platform

State Street goes live on FXSpotStreamFXSpotStream LLC has announced that State Street went live in November as the 13th liquidity providing bank to its FX and Precious Metals price aggregation service.

Alan F. Schwarz, CEO, stated: “Taking State Street live in all three of our collocation sites capped another great year for our business. 2017 saw several months of record-breaking trading volumes as well as a significant expansion of our product offering. We added NDFs and NDS, precious metals swaps and launched our new analytics suite, FXInsights. As the only bank owned FX service in the industry, structured as a market utility, FXSpotStream provides the market a better, less expensive, more efficient and transparent venue for banks and clients to transact with each other in a fully disclosed bilateral manner.”

spot, forwards, options, non-deliverable forwards (NDFs) and deposits. More information is available at: https://www.bloomberg.com/professional/product/fx-electronic-trading/

Alan Schwarz

Absa joins CLS as a new settlement memberCLS Group has announced that Absa Bank Limited has joined as a settlement member. Absa joins 66 other leading banks in becoming a settlement member in CLSSettlement, the world’s leading payment-versus-payment settlement service for the global foreign exchange market – which settles USD5 trillion on an average day on behalf of its clients. Absa will benefit from reduced settlement risk, improved efficiencies and increased liquidity

to support its currency trading operations. “I am very pleased to welcome Absa as a direct participant in our settlement service”, said David Puth, CEO of CLS. “Absa has been part of our network since the South African rand was added to CLSSettlement in 2004. This latest development strengthens our presence in South Africa and is further endorsement of our commitment to meeting the evolving needs of our clients.”

Bloomberg FXGO

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JFD Brokers launches Real StocksLeading international brokerage JFD Brokers has announced it is launching a new trading product, offering clients the opportunity to trade physical shares from its platform MT5+. JFD has one of the most powerful MT4 offerings globally in terms of symbols and asset classes. With this launch, the company will become a true multi-asset broker, remaining an innovator within the MetaTrader realm. JFD’s first step is to launch

LMAX Exchange liquidity now available through Seabury FXone LMAX Exchange has announced that its global liquidity has been added to Seabury’s FXone trading platform. Professional traders using the FXone GUI interface will now have access to LMAX Exchange streaming firm limit order liquidity and benefit from transparent, precise, consistent exchange quality execution. Robert Rydzewski, Principal Systems Engineer at Seabury FXone, stated, “By

completing integration with LMAX Exchange, FXone is able to offer its customers a leading solution which will meet the most demanding execution requirements of modern high performance trading.”

Gil Neihous

Fluent partners with MOEXFluent Trade Technologies (Fluent) has announced that it has partnered with Moscow Exchange (MOEX), to provide clients and prospects with simple and secure access to the MOEX UAT integration and testing environment. Fluent provides a turn-key solution, supporting ultra-secure and safe connectivity to MOEX, with Fluent providing full support for client integration, testing and certification requirements. The new service is live, with Fluent certified to provide low latency interface connectivity services for both ‘FAST’ market data and FIX order management to the MOEX FX Market.

“One of our core principles is to ensure that our client’s IP is 100% secure, and that is exactly what we have done for those accessing the MOEX FX platform,” said Gil Neihous, CEO at Fluent.

US stocks (SP500), which will be followed soon after by German stocks. Moreover, JFD will offer multi-asset class trading (i.e. CFDs, FX and real stocks) all from one single account, aiming at staying one step ahead of its competition.

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Stater Global Markets partners with PrimeXM

IPC collaborates with the Japan Exchange

London-based FCA regulated Prime of Prime, Stater Global Markets has added PrimeXM to its select roster of technology partners. The partnership extends the choice of platforms for Stater’s clients from Currenex, Integral and FlexTrade. It also provides a further distribution channel for Stater’s Top Tier liquidity.

Ramy Soliman, CEO, Stater Global Markets comments,

IPC has announced the launch of a new managed service in collaboration with Japan Exchange Group, Inc. (JPX) which will provide a one-stop-shop to for international connectivity between JPX and the financial markets in Chicago. JPX-Chicago Co-Location Direct will provide a low-latency and efficient

“We continually assess our partners to ensure we have a high quality offering whilst also giving choice and flexibility to our clients. PrimeXM’s XCore technology is robust, reliable and reputable and the organisation has a strong global footprint. It is particularly strong in Asia, which is important for Stater as we focus on our global expansion plans, particularly in the APAC region. This is a mutually beneficial partnership

interconnection between Asian and US markets.“This is an exciting advance in our partnership with JPX,” said David Dodd, Senior Vice President and Managing Director, Asia Pacific, IPC. “It offers our clients simpler and faster connectivity, as a one-stop-shop, clients will benefit from lower costs and a more reliable service.”

Crown Agents Bank launches EMpowerFXCrown Agents Bank has launched a new online foreign exchange trading platform – EMpowerFX allowing clients to gain access to competitive prices on both emerging market and major traded currencies. In addition to its API capabilities, key features of the web-based service include real-time streaming access to competitive market pricing and immediate tailored request-for quotation (RFQ) facilities. Insights on all trades and deals are available in historical trade blotters and histories can be both searched and exported to CSV format.

Ramy Soliman

David Dodd

and we are looking forward to working with PrimeXM and mutual clients.”

News.indd 3 15/12/2017 09:04

How can you make more trusted transactions?

FX Trading. Answers, advanced.Learn more at tr.com/fx

© 2017 Thomson Reuters S045269/03-17

Thomson Reuters Ad.indd 1 14/03/2017 10:49

IS Prime is continuing to grow at a significant rate, following on from its impressive financial results announced last year. Key plans for 2018 include expansion of its Agency Execution business, growth in the APAC region and new hires in London and Hong Kong.

Raj Sitlani, Managing Partner at IS Prime explains, “We are already ahead of our targets for this financial year and I believe we remain the fastest growing Prime of Prime in the industry. We are continuing to gain momentum in key regions worldwide, reinforcing our position as a global leader in the industry. The breadth of services we offer to institutional clients combined with our quant and technological resources enables us to differentiate ourselves in a highly competitive industry.”

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Ambitious growth plans for IS Prime in 2018

Raj Sitlani

Ken Pigaga

TNS launches new Cloud connectivity services Financial organizations who want to include cloud services within their trading infrastructure can now benefit from a new connectivity solution from Transaction Network Services (TNS) which addresses the mission-critical requirements of the global financial markets.

TNS Secure Cloud Connect has been designed to provide secure, resilient and easy access to a range of cloud services, including those from

NEX Optimisation has announced that it has provided central clearing connectivity for its FX risk mitigation service in non-deliverable forwards. The clearing connectivity capability enables dealers to flag trades that are part of a risk mitigation cycle for automatic submission to a central counterparty clearing house (CCP). Clients of the Reset FX risk mitigation service can now benefit from direct connectivity to CCPs allowing trades matched between two

NEX Optimisation offers central clearing connectivity

counterparties to be submitted directly for clearing rather than having to be re-submitted for secondary matching prior to communication to a CCP. Ken Pigaga, CEO of NEX Optimisation, said: “By offering central clearing connectivity to Reset clients, we can streamline their FX cleared trade workflow and make trade processing far more efficient.”

the major cloud providers. It facilitates connectivity to the cloud as well as from a firm’s presence in the cloud to TNS’ vast global financial community which includes more than 2,000 endpoints. Where cloud providers use a regional set up, TNS Secure Cloud Connect enables cross-region connectivity to help make the infrastructure more efficient and redundant. The TNS Secure Cloud Connect service includes monitoring, full management and a range of security benefits.

News.indd 4 15/12/2017 09:04 Invast Ad.indd 1 14/09/2017 15:08

R5FX and SHCH launch cross-trading connectionR5FX is launching a cross-trading connection with Shanghai Clearing House (SHCH), which will allow local Chinese banks to trade FX offshore for the first time. “This partnership is all about connecting Chinese banks with the London FX market and giving them equal access

to deep liquidity,” says Jon Vollemaere, CEO and founder of R5. “Connect opens up the London FX market to Chinese banks and our central credit and clearing model means they can trade with an expanded group of counterparties and trade on the best prices.”

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Benefits of switching from OTC FX trading to FX futures finds Greenwich Associates report There are significant economic benefits from switching from traditional OTC FX trading to FX futures, according to a new report from Greenwich Associates. A Bright Future for FX Futures, concludes that, in many scenarios, futures are a cheaper alternative to OTC trades in the FX market, with savings reaching upwards of 75% in some cases. “Given the increased scrutiny that buy-side traders are placing on trading costs, along with regulatory

team, and author of the report. More information about the report is available at:https://www.greenwich.com/fixed-income-fx-cmds/bright-future-fx-futures

Cboe Global Markets, Inc. has announced the launch of trading on Cboe SEF, a next-generation swap execution facility (SEF). The launch means market participants can trade NDFs on emerging markets currencies for the first time on proprietary Cboe technology. Cboe SEF delivers a next-generation market model that incorporates:

Launch of trading on Cboe SEF• A fully anonymous central limit order book with firm all-to-all

trading available to all Participants; • Configurable firm and non-firm streaming quotes for tailored

liquidity needs; • Curated liquidity pools to meet Participants’ execution criteria; • A diverse network of Participants resting passive liquidity and

a wide distribution network for Market Makers; • Pre-trade Net Open Position (NOP) credit checks and real-time

risk management.

Jon Vollemaere

schemes such as Basel III, which will likely drive execution costs higher, FX futures are a product that traders need to consider,” said David Stryker, Principal with Greenwich Associates Markets

News.indd 5 15/12/2017 09:04

WINNERS WERE AS FOLLOWS:

e-FX initiative of the year Cobalt

Bank e-FX initiative of the year & most Citi

innovative bank e-FX trading platform

Best e-FX trading venue FastMatch

Best FX liquidity provider XTX Markets

Best FX flow market maker Citadel Securities

Best e-FX platform for corporates HSBC

Best FX connectivity provider Broadway Technology

Best e-FX software provider FENICS

Best e-FX distribution platform Integral

Best post-trade services provider Broadridge

Financial Services

Best e-surveillance provider Nasdaq SMARTS

& Digital Reasoning

Best retail FX platform Saxo bank

Best FX prime broker NatWest Markets

Best prime-of-prime provider Saxo Markets

Best bank algorithmic trading BNP Paribas

technology provider

Best independent algorithmic trading Pragma Securities

technology provider

Best trading technology vendor: Thomson Reuters

Highly commended Portware

Best clearing services provider LCH

Best FX TCA provider ITG

Best liquidity aggregation system smartTrade Technologies

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CFH Clearing wins Best Liquidity Provider award

Gold-i crowned Best Cryptocurrency Solution Provider

For the fourth consecutive year, CFH Clearing has been named Best Liquidity Provider at the Finance Magnates Awards 2017.

Matthew Maloney, CEO, CFH Clearing comments, “We believe people voted for us because of our ability to provide institutional clients with a diverse choice of highly tailored bank and non-bank liquidity at competitive prices. Being part of the TradeTech Group (Playtech’s Financials Division), with the resources of a $4 billion market capital organisation has enhanced our position with our PBs over the last year and our clients are really benefiting from the strengths of these relationships.” CFH Clearing’s award-winning liquidity includes Spot FX, metals, CFD indices, commodities instruments and cryptocurrencies.

Also at the Finance Magnates Awards 2017, Gold-i was named Best Cryptocurrency Solution Provider. Gold-i’s Crypto product, the Gold-i Crypto Switch offer brokers access to leading global Crypto Exchanges and Liquidity Providers for both pricing and trading. It also gives them full control over pricing and execution and the choice of primary/secondary feeds or full aggregation. In addition, the Gold-i Crypto Switch enables brokers to sell their own Crypto liquidity via industry standard protocols such as FIX. Tom Higgins, CEO, Gold-i comments, “Gold-i has always focused on driving the market forward and we believe our Crypto offering leads the market in helping brokers to capitalise on the huge trend for Cryptocurrency trading. It’s a significant product for Gold-i as it works across all trading platforms and we are seeing a surge in sales as brokers across the globe look to extend their offering beyond FX and CFDs.”

FX WEEK AWARDS 2017

january 2018 e-FOREX | 21

Matthew Maloney Tom Higgins

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FastMatch, the electronic communication network for forex trading, has announced that it will open a new sales office in Greenwich, Connecticut, to add to their outlets in New York, London and Moscow. The move is in order to be located near to some of their major clients, including hedge funds and buy side firms which are relatively new for the company.

Dmitri Galinov, the CEO of FastMatch, explained: “We started growth via the sell side of the business, with non-banks, banks and brokers as participants. And as the market progressed with trading tools, we have asset managers and hedge funds that use the platform, though electronic methods of execution. At this particular moment we feel it’s important to have an office where important clients are based, and order flows are initiated, this will give us a leg up over our competitors.”

FastMatch may now consider Asia to be its next destination for further expansions, as the region’s forex markets have more potential for growth compared to Europe and North

Busy year ahead for FastMatch

America. From an institutional FX business perspective, Singapore would be desirable, but there are also possible business opportunities in Hong Kong and Australia.

THE EURONEXT CONNECTIONIn an exciting development in May 2017, pan-European Exchange Euronext, bought a 90% stake in FastMatch for an initial fee of $153 million. This will strengthen FastMatch, as clients will feel more secure making transactions on their platform, due to the size and reputation of Euronext. FastMatch’s client base derives mostly from the United States, while Euronext is very strong in Europe.

Paul Humphrey, Head of Fixed Income, Rates and FX for Euronext, said: “As for the product offering at some point in the future, we may consider other avenues after we have growth in our market data franchises, with the

Dmitri Galinov

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NEWS STORY

forwards and NDF market. Euronext is well equipped to help FastMatch do that, clearly adding to their reach of resources. In contrast to some or our competitors acquiring an FX business, our customer bases are complimentary.”

FX TAPEAs a burgeoning foreign exchange spot operator, FastMatch also announced the launch of their new innovation FX Tape in September, to serve as a central reference point for spot forex transacted prices. FX Tape will be tasked with publishing

real time post trade data, to be collected from

market participants in an aggregated fashion to minimize market impact.

The aim is that FX Tape will be a

significant game changer, in that it will act as a vehicle to build a globally transparent foreign exchange market, which will be available to thousands of market vendors on a worldwide scale.

Mr Galinov explained: “There is really only 5 or 6% of the market where there is transparent data that can be called upon to make forex trade decisions. So the FX Tape would like to be a central referencing point in the market to analyse huge amounts of data, and for market surveillance. There are multiple uses for it. If I am a small commercial user, with FX Tape you would be able to view inter-bank charge rates and go back to your provider, which would improve the execution FX trade, this is a powerful move and has never been done before.”

FX Tape will be a major priority for FastMatch throughout 2018, with a target in place for the tape to reach 100 yards. The second big push is to increase the synergies with Euronext, with a larger client base, and the rolling out of regulatory trade for traditional asset classes and distribution of market data.

With the prospect of expansion in Asia, it promises to be a busy year.

“We started growth via the sell side of the business,

with non-banks, banks and brokers as participants.

And as the market progressed with trading

tools, we have asset managers and hedge funds

that use the platform, though electronic methods

of execution.”

FastMatch Trader

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Digitec creates new software solutionDigitec are celebrating the creation of a new software solution for the forex market, with their D3 system offering ground breaking applications for prospective clients. The new project has been divided into three different applications by the Hamburg based company, which clients can choose from.

Firstly, the D3 elements module is the base unit for the market data, and all of the complicated algorithms. It collects market data from multiple sources, and

strategy using adjustments such as spreads, margins or skews, which be layered on a curve. Also, there is the seminal D3 curves editor. The user can create highly sophisticated yield curves and derives its information from the money market curves, not relying so much on broker data, or data from another bank.

All of the D3 applications are supported by a central core component that handlesthe static data for currency combinations, holidays and access rights.

enriches them through various blending features.

The communication tool allows a seamless connection to various e-trading and rate distribution platforms.

D3 sheets is the trader’s interface, and is used to monitor their forward curves in real time, while having the ability to interfere in an instant, if this is required. Due to the intense market overviews available, clients have the information to design their own pricing

D3 Sheets

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TOTAL FLEXIBILITYPeer Joost, head of marketing and sales at Digitec, said: “Our old D3 version has its roots in the early 2000s, it was based on an old architectural system. This has been our main motivation to develop a future-proof, modern and fully scalable system. If your business is growing, you not only need your software to deliver trading data at huge speed but also to be scalable.

The new D3 offers total flexibility when it comes to number of users, amount of processable data and corresponding hardware. This is a huge advantage for those banks and clients that need a future proof system for a growing business.”

He added: “We have built the new system with a better user interface. The look and feel is modern and intuitive, as one would expect in 2018. The development of D3 is always an ongoing process. We are constantly improving our software to ensure our product stays ahead in terms of reliability, performance and user-friendliness.”

So far, clients approve of the new D3 software, and not purely because of the advantages of the new interface, but also because of the additional features that make the new system more than just a face lift.

FEEDBACK Digitec welcomes feedback and market insights from their clients, enabling them to react to the general changes of market conventions or behaviour as quickly as possible. The company possesses a broad clients list, which arrive from more than 30 international banks that are based in the United States, all over continental Europe, Canada, Australia and the UK.

Mr Joost continued: “Many traders in the banks are used

to work with Microsoft Excel for performing calculations, but there is no central system that would allow them to share all information with their colleagues in real-time. D3 is replacing more and more Microsoft Excel setups on forex forward desks, and uses the curve editor to provide traders with highly sophisticated curve modelling features, and calculations that they got used to in Excel. For our software and services we cumulated the know-how and wishes of all of our clients, and the features that they would like.”

Peer Joost

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Barracuda FX launches OMS CloudOrder management specialists Barracuda FX have launched OMS Cloud, creating a brand new product designed to allow banks of all sizes to be active in using OMS technology.

Many banks who participate in the forex market have been left without the capacity or the

which manage FX orders on behalf of clients. FX orders are a key component of a full FX service, regardless of the size of the bank, its order book or its client base. All banks and orders are subject to the same service demands, compliance oversight, regulations and best practice guidelines.”

Barracuda FX were inspired to develop the technology, after being approached by some mid -tier FX banks, who were interested in their OMS service.

Fitzpatrick continued: “They recognised that the current process of either managing orders manually, or outsourcing them to single bank FX trading platforms was outdated. Manual workarounds, or using spreadsheet macros, are risky and highly inefficient, and using a single bank platform certainly doesn’t provide sufficient control or auditability.”

Barracuda believe that they have the ability to beat their competitors when offering OMS products to clients in the forex market, as they a specialists in this sector, with a history of creating OMS platforms with new and innovative features, since their inception in 2009.

resources to implement OMS tools, but now the Dublin based firm hopes that will change.

Kieran Fitzpatrick, CEO of Barracuda FX, explained: “We have launched a cloud version of Barracuda’s OMS platform. Larger FX banks typically manage tens of thousands of FX orders, and many support this process by using our core OMS platform, hosting it themselves. Banks with a smaller FX franchise still need an OMS service but may not have the resources to host it themselves. OMS Cloud is designed for them.”

He added: “We are targeting regional and

country-level banks

Kieran Fitzpatrick

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NEWS STORY

BARRACUDA ORDER HUBA major development is their unique Barracuda Order Hub, which is available to all clients whether they are core OMS or OMS Cloud.

The Order Hub is an electronic order passing network, where banks can pick and choose which orders they wish to manage and execute themselves. This is configurable by variables such as time, size, currency and instrument. Additionally, they can use Order Hub to outsource all orders where the bank has no appetite or is unable to manage them.

Barracuda say that this allows optimum management of a

bank’s order book, which should result in banks enhancing their ability to serve clients, to capitalise on franchise expertise, and manage its risk more efficiently than before.

Fitzpatrick reflected: “All of this is done within one single container and is fully secure, automated, audited and controlled.”

INCREASING INTERESTTo support Order Hub, Barracuda already has many of the world’s leading forex banks as liquidity providers and Fitzpatrick states that, “OMS Cloud has a massive amount of potential for us, broadly speaking the banks that need this service are number 100-

500 in terms of the amount of FX orders they manage. Every component of the OMS Cloud is operational, available, proven and ready for immediate use. We are already seeing a significant amount of interest from mid-size banks.”

One of the major drivers of why banks have changed the way in which they manage FX orders is the FX Global Code, which was released after two years of consultation in May this year. The code was focused on six main areas which included ethics, governance, information sharing, execution, risk management and practice and a confirmation and settlements process.

Barracuda Order Hub, is available to all clients whether they are core OMS or OMS Cloud.

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BRIEF NEWS AND ANALYSIS FROM AROUND THE WORLD OF FX

The Eurozone has come a long way from its early days of crisis and its economy has strengthened in almost all countries. For instance, the economic momentum is accelerating at a pace not seen since November 2011. This is despite the fact we have seen enormous amount of political unrest and investors’ confi dence wobbled several times over this period. Thanks to the European Central Bank’s ultra-lose money policy, countries like Greece have also started to perform well. Greek economy has a real shot now to exit the bailout program given that we have seen three consecutive quarters of growth. The last time we

By Naeem Aslam, Chief Market Analyst, ThinkMarkets UK Ltd

Why the ECB could Be Hawkish

have seen this sort of strength was in 2007. The country has struck another deal with its creditors in exchange of fresh loans. This has helped the Greek 10-year yield drop below 5 percent on the 12th of December. Again, a level which has not been seen in nearly eight years.

The outlook for the eurozone for the fourth quarter looks strong after a solid third quarter. The European economic sentiment indicator show a reading which is higher than the reading it had on the eve of the fi nancial

December has been a ‘hot’ month for the pound with volatility directly linked to progress in the Brexit negotiations. Every time the headlines reported a positive development the British currency rallied only to retreat again when new obstacles came to light. The price action was capped within a narrow range between 1.33 and 1.3550, with the quick changes of direction making investors wonder whether this is a market

A Brexit negotiations breakthrough but the real struggle for the pound now beginsBy Konstantinos Anthis, Senior Associate, Research, ADS Securities

to make profi ts, or one which is better to better stay away from.

The big breakthrough in negotiations came on Friday, December 8th when UK Prime Minister Theresa May and Jean-Claude Juncker, the President of the European Commission, announced that a deal had been struck. The two leaders reported that they had reached

an agreement on the amount of the “divorce bill”, the rights of EU citizens living in the UK and the Irish border issue. However, contrary to analysts’ expectations the pound didn’t rally instead it reacted to the talk about the issues which will impact the next stage of the negotiations. EU offi cials were rather apprehensive when commenting on the breakthrough deal suggesting

If the EU leaders decide to play hard ball on the trade talks the pound may collapse towards 1.32 or even 1.31

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CURRENCY CLIPS

crisis. This suggests that the eurozone could sustain its rate of expansion during the Q4 at 0.6%. That would make eurozone’s annual growth for 2017 at 2.3%, the fastest growth since the fi nancial crisis.

Eurozone has also made progress in its employment market since June 2013 and the unemployment curve is in downtrend. However, the area where it hasn’t made much progress is the wage growth. It is still feeble and lower unemployment rate has not been able to change it. This is even true in a country which is considered as the economic

engine of the eurozone, Germany. The unemployment rate has touched its normal level, but the wage growth progress is underwhelming.

So, going forward, the European central bank would use the tools of economic growth, wage growth and infl ation to adjust its monetary policy. Stronger economic growth in the region does warrant them to speed up the process of normalising the interest rate and there is a higher probability that the ECB adopts more hawkish stance towards its monetary policy, but wage growth and infl ation would keep them in check.

Naeem Aslam

As for the euro, the path of least resistance remains skewed to the upside but a higher euro would also hurt the economic growth in the eurozone. Thus, the ECB would use its forward guidance to make sure that the euro’s strength doesn’t get out of hand.

that a lot of time was wasted on the “easier” part of the talks. And it is true, the important issues which will decide whether Britons will have to live with a “hard” or a “soft” Brexit have to do with the trade agreements.

The pound’s outlook will be driven by the speed and success of these negotiations. For the UK, access to the Single market is essential because of the importance of the services’ sector in the domestic economy. If the deliberations so far offer any indication, it is unlikely that the EU will want to grant any kind of access which mirrors the current position. Therefore, getting any deal which satisfi es her critics and supports the UK economy will be Theresa May’s greatest challenge.

Early in 2018 the pound is expected to again dominate the headlines as the two parties will start debating the access question and looking at how company’s passport their services to the EU and vice versa. There will also need to be agreement on the free fl ow of workforce and capital. As always, the price action will depend on the expectations shaped by these early talks: a fast pace with the two parties fi nding common ground will allow the UK currency to break to the upside but this is not our primary scenario.

Unfortunately for sterling traders, the most likely development is that the EU leaders will play hard ball and demand that the UK is treated like any other country who is

not a member of the Union. This would be harmful for the pound and with the Bank of England poised to leave interest rates unchanged for the time being the UK currency may struggle for good news. Should our expectations prove to be true then a break below the 1.33 area could expose the 1.32 and 1.31 support areas.

Konstantinos Anthis


When I was kindly asked to write this article I knew what to write but not necessarily the graphic to accompany it. I could’ve drawn a rising Chart line but that would’ve been pointless without context. I could’ve superimposed failed rallies in Silver from the late 1970’s (I was there for that at the tail end) or the Tulipmania in 1630’s Netherlands (I wasn’t there for that...plus I think the Dutch might be getting sick of this I think the Dutch might be getting sick of this

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Bitcoin, Doomsday Preppers, Grandpa Joe’s Thanksgiving and all in between

reference by now) but that would’ve been just optimisation without substance, though I’ve had both mentioned to me as models for Bitcoin. Instead, I made the graphic here to illustrate my story. I wanted to write about how the Bitcoin (& other cryptocurrencies) spread had united buying in such disparate groups as those preparing for the end of modern civilisation (‘Doomsday Preppers’) and the typical suburban family around the family dining table for Thanksgiving. The reasoning is thus – Doomsday Preppers have long loathed ‘government’ in whatever guise it came.

Eddie Tofpik is Head of Foreign Exchange at ADM Investor Services International Limited in London

Contrary to 2016, 2017 has been worrisome for bond investors as the steady fl attening of the yield curve offers little returns, while the narrowing spread between short and long term Treasuries seems to agonise many analysts too with their 2018 outlooks; a heavy unwavering concern since the 30-10 Year US Yield Spread plummeted to 0.38% only recently, a 2007 record low.

The fl attening of the yield curve signals that the Fed has set the Fed Funds rate too high, hence, markets anticipate that future infl ation fi gures are likely to depreciate. Actually, FOMC members have adjudicated to raise twice within 2017,

By Stavros Tousios, FX Market Specialist, FXPRIMUS

back in June and March respectively. With the last 2017 Interest Rate (IR) decision coming up next week (Dec 13th) the risk for short versus long term Treasury Yield inversion intensifi es as analysts foresee, with a 92% majority, that the year-end Fed Funds Rate will increase to 1.50%. In addition, the markets started pricing in 2018 hikes already, which turned, and keeps turning, the short-term Yields to an upward direction. The chart accompanying the text can provides

Trimming of the Fed’s optimism


They therefore loved Gold and loathed fi at currency and initially Bitcoin as being products of the establishment. However, once realisation dawned that Bitcoin came from the same Libertarian origins they support, buying started - in increasing numbers recently. This buying coincided with a recent surge around the U.S. Thanksgiving Holiday.

Imagine if you will a family sitting around the table for Thanksgiving, all generations having travelled to be there. Talk turns to how Grandpa Joe had acquired some Bitcoin as a ‘fun’ bet (actually, it could be anyone in the family) and the family talk more for a while before the

football starts on TV. Thoughts move on & some decide to buy as a Christmas present or for their own use Bitcoin - in a handy key ring digital wallet perhaps - just for fun. Both these two disparate buying sources see prices rise...and buy a few more...just in case or as ‘gifts’ (you understand).

This, along with the well-publicised start of Bitcoin Futures has helped the recent boom on top of the usual buying sources such as China, Japan, South Korea and troubled zones from Afghanistan to Zimbabwe. Where next? Well, with Futures, to some, possibly the most

bearish thing to hit the market since the Russian Ponzi scheme, it will be an interesting run to Christmas. Not only for Grandpa Joe but for those in concrete nuclear bunkers.


CURRENCY CLIPS

Eddie Tofpik

an indication of how closely (normalised) the short and long term Yields are. For the rest of 2017, we saw three good Core infl ation fi gures, fi ve poor and three prints of CPI releases that remained unchanged. Interestingly enough, the fi ve publications included four “steady” and one “better-than-expected”, yet no reductions. Considering a lag of around six months between interest rates and infl ation, the March hike should have produced a decrease in infl ation in at least one of the last fi ve releases. Regarding Fed’s preferable infl ation measure indicator, the core personal consumption expenditures (PCE),

its outlook has been slashed down from 1.7% to 1.5%, trimming some of the Fed’s optimism. Taking a peek at the Employment fi gures, eight out of the twelve Payroll reports came out worse than the previous, indicating that the Employment sector, and hence the economy, have been growing with a slower pace. Furthermore, from the total of the twelve reports, seven of those were revised downwards, unveiling that economists may have been too optimistic with their projections for another time; the seasonally adjusted revision in over-the-month change 3rd – 2st averaged -24.5K. Since Policymakers rose the 2017 GDP Growth outlook at the latest

Summary of Economic Projections back in November, but also in September, most analysts would agree that Fed has been too optimistic about the US economy, increasing their fears for a 2018 Yield inversion.

Stavros Tousios



Taking the first steps towards a new market structure Assessing the impact of MiFID II and the FX Global Code

Looking back, 2017 will be seen as a watershed year for the FX market. After a year of deliberation, the FX Global Code (“the Code”) was published on May 25th and a new Global FX Committee (GFXC) was formed in order to promote and maintain the Code, putting standards and principles into the spot FX market for the first time on a truly global scale.

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The year 2017 will also mark the beginning of the end for how FX derivatives trade in the future, as the regime of the second Markets in Financial Instruments Directive (MiFID II) starts. This EU-rubber stamped legislation takes effect on January 3rd, 2018, and comes

more than eight years after the G20 meeting in 2009 at Pittsburgh, and like the Code, its underlying principles are based on transparency in financial markets.

Both pieces of work aim to fundamentally change the way FX is traded in the future.

Regulators saw fit to reform financial markets in the wake of the 2008 crisis, and the reform of the spot market in particular came about following the actions of individual traders at major banks which led to billions of dollars’ worth of fines being dished out across the industry as a means of settling legal disputes.

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REGULATIONS & COMPLIANCE

GLOBAL CODEAs FX is a truly global market and hard to regulate through one piece of law-binding regulation, the Code was a culmination of ideas from 16 international trading centers, with representation from both the public and private sector, to come up with a set of standards and principles that everyone could get behind.

“Our goal is to promote fair and effective markets around the Code and recognize the market has a more broad and diverse set of participants than any other. We’ve created a strong dialogue from people in major FX centres, but also in countries like South Korea,



Taking the first steps towards a new market structure

India, China, Brazil and Mexico. This was to ensure that we addressed concerns of broadest set of market participants,” says David Puth, vice-chair of the GFXC and Chief Executive at FX settlement system, CLS.

While market participants do not have to adhere to the Code in the same way as MiFID II, the best practice guidelines are being viewed as a way to enhance transparency and openness in the market, encouraging firms to publicize their own adherence.

“We launched the first public register of market participants at CLS which is focused on the 66 settlement members. For now a small handful have placed commitment to code on public register, but we expect to see that pick up pace significantly. Firms have until May next year, and some of the uncertainty around principle 17 of the Code might have been a reason to wait,” says Puth.

Principle 17 refers to the contentious issue of last look and pre-hedging. It caused quite a stir in the marketplace when the first iteration of the Code had the work “likely” included within its text for principle 17

which led many participants to feel as if the actions of abusers of last look would continue.

After receiving enormous feedback from the industry, on November 15th, principle 17 of the Code was adjusted to indicate that “market participants should not undertake trading activity that utilizes the information from the client’s trade request during the last look window”.

“The GFXC has made a number of decisions that will help to strengthen and embed the Code across the global market. I am grateful for the detailed feedback provided by market participants on last look in response to our Request for Feedback,” said Chris Salmon, chair of the GFXC at the time of the release.

But the truth is participants have already been adjusting to the spirit of the Code. For example, XTX Markets, a non-bank market-maker, eliminated discretionary hold times for trades when trading directly with clients, and many other liquidity providers, including banks, have done something similar or at the very least reduced the 100 millisecond hold time they imposed on their own clients.

“The execution principles and agreements that liquidity providers had in place with customers prior to the FX Global Code being published – many of them have already changed. We’ve already seen a difference in the market already. Some execution agreements have explicitly stated they will not use the information within the last look window for trading, and others have moved to zero hold time so participants can’t use that information to pre-hedge,” says Roger Rutherford, Chief Operating Officer at ParFX and ACI FX committee member.

“It does appear that platform providers have been encouraged to involve themselves and to some extent police improvement in fairness and market conduct as a result of the Code and potential changes to last look disciplines,” says Paul Chappell, Chief Investment Officer at C-View and ACI Director of Education. “In reality it is the bilateral

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David Puth

“Our goal is to promote fair and effective markets around the Code and recognize the market has a more broad and diverse set of participants than any other.”




relationships between the market makers and customers using their services where actually improvement their conduct is required - that being the case, widespread adoption of the global code will assist in this.”

The effects of the Code are already being felt as a result, says Chappell. “General adherence to the Code will certainly make market participants examine their execution systems and bilateral relationships notably in those instances where their market participant counterparties are not adhering to and do not intend to adhere to the code,” he says.

While the changes may be greeted enthusiastically today, market participants need to make sure adherence to the Code and its requirements are maintained some time from the present day. Only then will the market know if it has been a success, says Neill Penney, co-head of trading at Thomson Reuters.

“The mood of the industry has changed to be aligned with the Code and I think that happened post the financial crisis and heightened while the code has been under development. We really need to nail things down not just for now but for potentially

when things might kick off in a few years because the Code becomes more significant as memories fade. The proof in the pudding will be how the industry is in 10 years, but the industry seems well aligned to the Code now. People have been steadily evolving since the first draft came out in May, 2016, and there has been a lot of work done already on how to segregate information, order handling processes, so this should be a very smooth transition,” he says.

MIFID II What some market participants don’t expect from MiFID II – unlike the Code - will be such

FX is a truly global market and hard to regulate through one piece of law-binding regulation




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a smooth transition. Even with such little time to prepare, there are still numerous sticking points that make it harder to say with any certainty that a firm will be MiFID II compliant on January 3rd, 2018.

Compared to the Dodd-Frank Act, there are pre-trade transparency requirements and the products covered are wider, as they include non-derivative products, such as bonds. The definitions for executing on a trading venue are still unclear in terms of metrics, waivers and whether deferrals will apply, as well as precise clarity on market structure points such as how venue workflow will operate, explains Dan Marcus, global

head of strategy and business development at Tradition.

“It’s impossible for anyone to say with 100% certainty that they will be MiFID II compliant on January 3rd. In the case of Dodd-Frank, prior to the introduction of SEFs there were a number of no-action letters issued to help with uncertainty

around certain Rules being used to implement elements of the law. We can’t do that in Europe,” he says.

Regardless of the difficulties, market participants have been getting ready as best they can, busying themselves for the inevitable crunch ahead of the deadline next year. Part of getting to grips with the regulatory text has been what customers would be required to do under MiFID, what legal structures they have and how they relate to MiFID. This became more complicated as the conversation quickly

Paul Chappell

“It does appear that platform providers have been encouraged to involve themselves and to some extent police improvement in fairness and market conduct as a result of the Code and potential changes to last look disciplines.”

One of the effects of MiFID II will be to increase use of algorithms in the marketplace




turned to firms with different legal entities, and trying to accommodate them between using an MTF and an off-venue facility in Singapore, for example.

“MiFID II has without question placed an onerous burden of reporting and cost upon all market participants, this unfairly penalises the small and medium-sized players on the market making but particularly on the buy side,” says Chappell.

One of the effects of MiFID II, given the requirement for increased transparency and the

level of complication that the regulation brings with it, will be to streamline execution in a way that increases the use of algorithms in the marketplace.

“I do think it will change strategy and push people in the direction of using algorithms more than they might have done previously,” says Thomson Reuters’ Penney. “The Code will intersect with that as it has openness and transparency within it, and that begins with execution - explaining how a price was made or on the buy side explaining why I took the price I did. These tools are the right mechanism to capture both intent and action.”

COMMONALITY & DIFFERENTIATORSWhat is certainly most in common with both the Code and MiFID II is the level of transparency that both documents aim to bring to financial markets.

“These principles are about raising a level of transparency and understand among participants about how to transact business in the most effective way. That transparency takes many different forms but the Code has surfaced some

of those issues that may have not been as easily understood by market participants in the past. Last look is one and we’ve put in place some fairly clear guidelines on how last look operates to markets,” says Puth. Increasing transparency will also improve education among clients, says Penney, which will in turn force the banks to become more open about how they sell their own services.

“The benefits of the Code will make conversations between customers and banks more specific, it will make the buy side more educated consumers, and force the sell side to be clear about what products they offer and how they differentiate from the capabilities they have. So each side will be able to

Dan Marcus

“Every time you put a regulatory burden in place, it can in some cases reduce competition, which in turn, can impact liquidity.”




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make more informed decision about the way they execute a given customer’s risk profile,” he says.

“The combined effects of the FX Global Code and MiFID II will result in market participants having a clearer understanding of their bilateral relationships, and terms and conditions,” says Chappell. “This is particularly true in the area of how large market-makers handle orders and conduct themselves and their principal positions around order execution. It is a moot point what effect of the transparency insisted upon by MiFID II and the need for near instant reporting of trading will have upon those relationships.”

But there also some important differentiators between the Code and MiFID II. While the Code has taken on the views of 16 financial centers globally and implemented guidelines as best practice, MiFID II’s closest ally is Dodd-Frank which has some highlighted differences. This could lead to fragmentation of the markets for which they oversee, according to market participants.

“In the short term, the initial focus of MiFID is to take the way people execute FX and put on regulated venues, so people will carry on with the same activities with the same venues with more transparency and fairness. However, in the

medium term, a number of things could drive differences between US and Europe. One is the requirement to trade on venue which will come along with clearing – both at different stages for these jurisdictions. The other is MiFID pre-trade transparency. At that point we might enter a phase where optimal trading strategies are different between two jurisdictions, so there may be some divergence there,” says Penney.

“Every time you put a regulatory burden in place, it can in some cases reduce competition, which

in turn, can impact liquidity,” says Tradition’s Marcus. “Former CFTC chairman Gary Gensler said he expected to see around 200 SEFs go live, whereas there are actually only 23 currently registered with liquidity concentrated in just a handful. The market is fragmented now, and without equivalence it will fragment even more between the EU and US. If equivalence is achieved, we will see a better uniformed, global market.”

“What we have seen over the past few years is the market has become increasingly electronic, and the market has

Increasing transparency will also improve education among clients

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Neil Penney

“The benefits of the Code will make conversations between customers and banks more specific, it will make the buy side more educated consumers, and force the sell side to be clear about what products they offer …”

felt that as a trend over the past 15 years or so. What MiFID and the Code and fines have done though is drive a sense that when e-trading there is a complete audit trail that begins with every stage of the price manufacturing to execution. That is very difficult to replicate with a trade that takes place on the phone,” says Penney.

In the longer term trading strategies between London and New York will likely overlap, so the market will figure out what works best, says Penney. In the Code, the only likely fragmentation will not be geographic but rather which customers will publicly sign up to adhere to the Code and those that will not.

“Some customers will expect their banks to publicly adhere to the Code and they will have to explain as part of internal reporting why they’re trading with banks that don’t adhere to the Code. On the other hand a hedge fund might have a different perspective and will look at liquidity performance of their liquidity providers, and they will feel they have the tools and capabilities to really look after themselves,” says Penney.

For others, the recent onset of the Code means it could be too soon to tell whether there has in fact been any significant changes occurring. However – one controversial theme that followed the benchmark scandal was information sharing. David Puth feels that practice could now become standardized among participants.

“We spent the greatest amount of time on pre-hedging and information sharing for the buy side and sell side. The market recognized there had been a seizing up of exchanging of market information following the benchmark scandal that took place. We would expect information sharing is now

something that is taking place in a little bit more open and seamless manner while conforming again to a standard set of practices,” he says.

A FINAL THOUGHT ON DATAWhat new regulation and guidance does bring is new opportunities for the industry. With requirements for increased transparency, this will likely lead to a wealth of data coming to the market which businesses can make use of, says Tradition’s Marcus.

“Regulatory technology is a nascent area. As soon as complications are introduced by regulations, people try to innovate to make the market more efficient. It will be a challenge for any new Fintech provider to make money when you are fighting against incumbents who have been doing this for many years and have the ability to adapt their business model, but it’s certainly a big revenue opportunity,” he says.

This will likely lead to a reliance on TCA for the buy side, says Chappell: “The insistence within MiFID II for best execution and the requirement that this is clearly shown as to how it is arrived at will definitely increase demand for technologies to assist in displaying this. TCA analysis particularly contributes to this.”


Customer satisfaction

is still our best currency

danskebank.com/ci

We are honoured – once again –to be named Best Bank for Scan-dinavian Currencies. For the sec-ond consecutive year and for the third time in four years. Especially because it is our trusted custom-ers and partners that have voted for us.

The majority of the FX business within Danske Bank deals with Scandinavian currencies. This is why we are focusing on Scandi-navian currencies rather than a broader offering.

This focus has led to a deep un-derstanding of the Scandinavian currencies, which are relatively illiquid when compared to other major currencies.

The award is a sign of our effort to be a truly customer-centric bank. Dedicated to creating value for our customers throughout our Nordic markets. It also shows that customer satisfaction is still our best currency.

We welcome you at Danske Bank.

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OTC Exchange Ad.indd 1 14/12/2017 10:03 OTC Exchange Ad.indd 2 14/12/2017 10:03

What sort and range of customers does NatWest Markets provide FX dealing services for?

JQ We have a strong, technologically advanced electronic offering, joined up across products to serve our customers effectively – from

small and mid-sized corporates to large companies and global financial institutions.

Our single dealer digital platform, NWM Agile Markets™, sits within this offering and is specifically tailored for customers and their bespoke requirements. Our market-leading derivatives expertise and highly regarded prime brokerage business supplement this to provide our customers with a holistic FX proposition.

You are part of the team that has been building Agile Markets, the bank’s next generation low latency electronic trading platform. What key features and functionality does it provide?

JQ Agile Markets is the home for all NatWest Markets

FX services across cash execution, strategy,


When e-Forex interviewed John Quayle, Head of FX Algo Execution, NatWest Markets, to learn about the scope and scale of its Agile Markets platform, it quickly became clear that this state-of-the-art, single dealer offering addressed the complete waterfront of NatWest Markets’ customers’ FX needs from pre- to post-trade. Its range of functionality, its flexibility and future-proofed advanced technology marks it out as a likely significant feature in the e-FX landscape for some time to come. This is what we learned.

prime brokerage, options, algos and analytics. Through a single login, customers can access all of the NatWest Markets FX products and services that they need.

We’ve built Agile Markets in the language of the web (HTML5) so customers can access the platform from any modern Internet browser, or open it through an easy-to-use desktop application. No special downloads are needed for customers to easily access Agile Markets.

Customers can use Agile Markets to:

• Execute FX products in real time, with competitive pricing. Trade on streaming spot, outright and NDF FX prices

• RFQ for swaps, and multi-quote for spot and outrights

NatWest Markets: Agile Markets platform

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John Quayle

046-050 Platform Profile.indd 1 15/12/2017 09:35

• Price and execute vanilla and exotic options

• Place orders and use automation tools (bulk order placement)

• View the latest desk strategy and sales commentary articles

• Analyse market conditions pre- and post-trade

• Execute using NatWest Markets’ innovative algo strategies and monitor in real time

• Use the automated gamma hedging strategies for managing options risk

• View all of their activity in the trade blotter

• Manage their trades using post-execution apps and confirm post-trade

What factors and considerations were key from the start in shaping the concept and design of the new platform?

JQ There are many FX trading platforms in the market. Our aim was not to be a cookie cutter version of everybody else, but to provide the best of what NatWest Markets offers in FX to our customers on Agile Markets, which has been designed as a


PLATFORM PROFILE


simple and reliable platform to use.

Throughout the design and implementation process, we spoke to our customers about what new functions and services they wanted on Agile Markets, and trialled new apps and features in their early stages with a set of pilot customers.

Not only have we drawn

from best practice in the FX technology and platform space, but we have also looked beyond FX to other industries that produce similar products: for example – data heavy, fast workflow apps.

What do you see as the real benefits that customers get in using a platform like Agile Markets and what is unique about your product offering?

JQ Among the many benefits for customers using Agile Markets, one of the most important is flexibility.

Firstly, we are able to tailor products to our customers’ needs far more closely than is possible on a third party platform. This enhances the products that we can offer and the granularity of their pricing.


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We have built a highly regarded analytics toolkit



Secondly, the particular architecture used for Agile Market makes it easy to add a new app at any time, effectively making the platform scalable. An interesting example of a unique app is the ‘gamma hedger’, which enables the risk management of an FX options portfolio to be automated. The gamma hedger frees up traders’ time and allows for the capture of opportunities that a trader

may otherwise miss.

We have also built a highly regarded analytics toolkit that allows for a given strategy, or other measures of interest, to be simultaneously compared across multiple currency pairs. This significantly speeds up the process of searching for market opportunities for our customers.

Many readers of e-Forex are interested in transaction cost analysis (TCA) and achieving best execution. What toolsets does Agile Markets provide that can assist them?

JQ Indeed, these topics are very pertinent to our customer base. We have a variety of tools on Agile Markets to help users to be both well-informed pre-trade, and to investigate and measure performance post-trade. We have a strong belief in bringing market transparency to our customers and TCA is one way to do that.

Prior to a customer placing an order or trading on the platform, there are several tools they can use to aid decision-making. Our analytics toolkits can be used to analyse current spot liquidity conditions, or a particular options strategy. This has been developed over a number of years.

Post-trade, customers are able to analyse their transactions using the Agile Markets TCA tool. This incorporates various comparison benchmarks,

including live independent mid-market rate data from New Change FX, which enables customers to evaluate the quality of their executions.

Many firms nowadays are worried about both the dependability and security of their electronic trading platforms. What steps have you taken to ensure that Agile Markets is both very secure and reliable?

JQ Agile Markets has been designed to be resilient and to keep the customer and their business safe and secure. Our dealing applications are covered by a double layer of authentication. The platform login includes both a password and a second form of authentication. Customers have the choice of using a hard token, mobile phone or desk phone to receive a code, which they enter at login, as well as their password. We have given customers the choice between daily or 30-day, two-factor authentication (2FA) – this means that they can choose the appropriate login security for their business.

In what ways do you think Agile Markets will strengthen and enrich the traditional relationships between the bank and your customers?

JQ Increasingly, customers across the globe are choosing

PLATFORM PROFILE

We have built a highly regarded analytics toolkit


to trade on electronic venues, as business models change and evolve with technology.

We envisage that the majority of trading will be executed over electronic venues in the coming years. Agile Markets not only gives customers the tools to execute efficiently; it also provides unique added-value features and analysis to help customers with their trading decisions and to assist them with navigating the ever-changing liquidity environment.

We offer a comprehensive, professional suite of market-

leading services as well as the traditional FX product set, providing value to our customers and helping to deepen our relationships with them.

In what ways have you tried to future-proof the platform to ensure it remains state of the art for as long as possible?

JQ The FX market is a dynamic one, so we have designed Agile Markets to evolve with it. We’ve done this by building the front end of the platform with its own application

programming interfaces (APIs) that can link securely into third-party apps or our own FX back-end technology stack. It means that when we add new apps, products or features, it can be done quickly and cost-effectively for the benefit of our customers. APIs make Agile Markets highly scalable and dynamic.

Thank you John. We look forward to revisiting Agile Markets again in due course, to learn more about Agile’s new apps, products, features and capabilities as they evolve. Thank you for speaking to us.



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Execution Analytics – Helping FX trading firms to take more informed decisions

Howard Tai, Senior Analyst at Aite Group, said that even though TCA has gone through these different progressions, that doesn’t mean that the majority of market participants have gone through all phases of that evolution.

To some extent, it risks being little more than “ticking-the-box” exercise for compliance purposes, however, a small minority of firms can and do appreciate the true application of best execution, Tai noted.

“Progressive firms do a self-examination that the process to get the best outcome is in line with what they are trying to achieve,” he said. “It becomes a self-examination of the firm’s investment methodology itself.”

QUOTE-DRIVENAccording to research earlier this year from Greenwich Associates, traders increasingly turned to FX TCA following the 2013 fixing crisis. Almost a third, 31%, of

institutional asset managers now use TCA as part of their trading process. Even among corporate FX traders, 8% now use transaction cost analysis.

“This may not sound like much, but considering that these companies are not financial institutions, it is a strong sign of increasing sophistication by FX end users,” wrote Richard Johnson, VP in the firm’s Market Structure and Technology practice.

Such signs are welcomed and noticed across the community, but it’s still a quote-driven market.

FX is, at the moment, a “hybrid gray world”, said Pete Eggleston, Co-founder and Director at BestX, a TCA provider, and the same rules as in equities and futures just don’t apply.

“You have a lot of business that is still quote-driven, but doesn’t have the same fingerprint around the whole order or lifecycle of that trade,” he said.

Over the last five years, the conversation about what best execution means has itself changed, he added. It used to be that taking the best price among five executing parties for an RFQ was considered a job well done, but that thinking has moved on, Eggleston said.

“People understand there’s a lot more to Best Execution than just

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“Progressive firms do a self-examination that the process to get the best outcome is in line with what they are trying to achieve.”

Howard Tai

In order to calculate cost, a firm must first decide what it’s measuring itself against

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hitting what optically looks to be the best price.”

CALCULATING COMPLEXITIESIn order to calculate cost, a firm must first decide what it’s measuring itself against, so picking the appropriate benchmarks is the first goal, said Guy Hopkins, Founder of FairXchange, a TCA platform provider and bespoke execution consultancy.

In some cases, this is prescribed, like in the PRIIPS (Packaged Retail and Insurance-based Investment Products) regulation, but in others it requires choosing benchmarks suited to the mandate of the trading desk and the firm.

“Once the appropriate benchmarks are chosen, you then need to source the appropriate

market data to be able to compute those benchmarks and your performance against them,” said Hopkins. These two pillars will result in a reasonable estimate of cost. But measuring execution quality is a far more complex exercise. “You are then seeking to understand that cost in a wider context: was the cost reasonable – for me, for my client, for my counterparty? What were the drivers that led to that cost, and what can I do to manage those variables in the future?”

And new analytical solutions are helping FX trading firms in those efforts to measure, record and justify best execution.

DATA DELUGEFX isn’t wanting for data, but until now it hasn’t really been presented in a systematic way that facilitates understanding and insight into cause and effect, said Hopkins.

“This is true for both traditional risk transfer execution and also more complicated strategies like algos,” he added.

The top eFX market makers, both banks and non-banks, have been using this structured approach to data analysis for some time to manage their businesses. Now there is more widespread adoption of the tools and techniques across a greater variety of market participants to manage liquidity providers, understand algo strategies, timing and sizing of trades, among other factors.

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Pete Eggleston

“People understand there’s a lot more to Best Ex than just hitting what optically looks to be the best price.”

Buy-side players, corporations, and retail aggregators need to take best execution seriously because of shifting market structure dynamics and upcoming regulatory changes

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Hopkins noted that although spread remains one of the core metrics to measure performance, implicit costs such as market impact are equally important.

To make meaningful sense of execution performance, he explained, there needs to be an assessment of the relative contribution of four variables: trader actions; strategy used; liquidity the strategy interacted with; and the wider market conditions such as time of day, and currency pair effects, for example.

At FairXchange, that means analysing the different events associated with FX trading alongside the actual fills. The firm’s analytical framework, Horizon, provides metrics that help clients gain insight into each of these drivers. Horizon takes a large dataset of any trading event that can be captured electronically and is

timestamped, and compares it to market data at the time.

“Ultimately it means taking that data and building up a picture of what’s happened within those trading events,” he said.

In algo execution, for instance, focus tends to land on the

parent order benchmark — performance against the arrival price and performance risk transfer price or TWAP.

And though these are important, they don’t provide much actionable insight into the performance or otherwise of a given algo strategy, said Hopkins: “When you’re looking at that result you think well, is that down to the market or the algo?”

MID-VENUE PRICEIn spot FX, most TCA providers were using the slippage methodology based on the mid-market price of single venues, said Willis Bruckermann, Analyst Consultant at GreySpark Partners, a capital markets consultancy firm.

That has a number of problems that are yet to be solved. For one, a trade in motion is much more likely to move that particular liquidity pool than the global liquidity for a given currency pair, so a measurement ends up being like an “echo chamber”, he noted. “The truth is it’s the mid-venue price, so the mid-market price would have to take on all the bids and offers, and serve all executions that are undertaken globally across this fragmented venue landscape.”

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“Once the appropriate benchmarks are chosen, you then need to source the appropriate market data to be able to compute those benchmarks and your performance against them,”

Guy Hopkins

Daily Spot FX Volumes by Execution Method

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TRADING OPERATIONS

As this issue went to press the National Futures Association, the US regulator, announced an amendment to its disclosure rules that would oblige FX brokers to provide detailed information on transaction costs to their clients on demand. Moreover, disclosures will be required for any commissions and other fees.

The official proposed amendment to the CFTC reads: Each Forex Dealer Member shall: 1 disclose the following, if applicable, to each customer

on a per-trade basis in the same currency as the base currency of the account on the customer transaction confirmation statement: (i) Commission and any other fees; (ii) For transactions where a Forex Dealer Member is

using straight-through processing, any mark-up or mark-down the Forex Dealer Member imposes on the price the Forex Dealer Member received for the offsetting position to the customer’s order; and

(iii) For transactions where a Forex Dealer Member is not using straight-through processing, the mid-point spread cost.

2 Forex Dealer Members not using straight-through processing must provide customers with a description of the mid-point spread cost in a form and manner required by NFA.

examining at the moment of the trade itself, or “at-the-touch” execution alone.

GreySpark’s Bruckermann said that at-the-touch makes sense

for liquid markets, but for less liquid pairs, once an order gets worked by engaging either one or more brokers there may be information leakage and market impact that moves a price against the order just by indicating interest.

“Asking from the point of execution or order placement

Willis Bruckermann

“We anticipate TCA, both pre- and post- trade to be offered essentially for all FX trades down the road.”

More information is available at: https://www.nfa.futures.org/news/PDF/CFTC// ProposedAmendmentstoNFAComplianceRules2-36and2-43RetailForexCosts.pdf

NFA steps in

FX TCA providers are now starting to look at aggregating from across a large range of venues, both single dealer platform and brokerage execution venues, which is a new development for FX, he added.

AT-THE-TOUCHBuy-side players, corporations, and retail aggregators need to take best execution seriously because of shifting market structure dynamics and upcoming regulatory changes, and that means investing the needed resources to attain and be able to demonstrate best execution, according to a recent report from Aite Group.

Senior analyst Howard Tai cautioned however that taking best execution and TCA seriously means looking at the investment lifecycle process from a holistic angle. Without doing so, any analysis is only




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trade analytics, says Cürex’s Singleton. On the Cürex platform FX traders can survey the live market in 200 currency pairs, and the streaming analytics shows spread development across its entire book, which is 100% executable. There’s also historical spread analytics and a volatility tool.

MiFID II requires a pre-trade market check that is systematic and embedded in an investment firm’s trading policy and practice, explained Singleton. He added that having the ability to survey the marketplace anonymously is advantageous, particularly when considering the execution of larger sized trades or less liquid currencies.

That’s because streaming pre-trade analytics show when a skew in the market exists – more buyers than sellers, or vice versa. A volatility tool alerts the trader when the market is moving quickly or slowly,

helping them choose the best timing for their trading decision.

“We think it is obvious - a better informed trader makes better trading decisions. Combined with robust post trade analytics, the end-to-end use of market and data analytics can improve the trading results of every FX trader,” he said,

adding that, at the base of successful analytical solutions that prove best execution, are reliable and accurate data that are not distorted by aggregation, redundancy and non-executable pricing.

DYNAMIC PROCESSMoreover, the very concept of best execution is not a static one, rather it is a continual process that compels FX market participants to identify, use, evaluate and judge different execution alternatives in the marketplace.

On the post-trade side, certain TCA providers have developed helpful solutions that specifically assist FX traders with their mandated reporting under MiFID II, says Singleton. On the pre-trade side, meanwhile, FX traders are struggling with complying with MiFID II’s guidance on obtaining a pre-trade market check that is systematic and embedded in their trading policy and practice. “Very few firms have developed pre-trade analytics that directly answer the regulatory mandate,” notes Singleton, adding that analysing execution performance on a meaningful basis requires access to lots of hard to obtain data.

James Singleton

“The accurate measurement of costs and execution quality will remain difficult as long as FX market participants stick with past practices,”

The Utilisation of Best Execution Algos vs. Voice and Electronic Manual Execution

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TRADING OPERATIONS

Some of the metrics that would be useful to measure true execution performance would include order fill rates, order misses, venue hold times, post-trade market impact, price slippage from time of risk origination until time of order execution, and counterparty performance.

“Getting access to some of this information is difficult – analysing it is challenging for investment firms without adequate human resources or bandwidth,” he said. “And some of these metrics depend on access to precise time-stamped data. Without such precision, a supposed analysis is not worth much and could actually be misleading.”

PROVING PERFORMANCETo more optimally manage the key issues that drive performance, trading firms need to seek to quantify as much as possible, said Guy Hopkins.

“If they can see where or when they are having demonstrable market impact they can then do something about it,” he said.

Hopkins added that this is why it is so important to attempt to differentiate between the different drivers of performance, using market impact as a case in point.

“If a client is using an algo and the market moves away from them, was the strategy

responsible, or was it just unlucky? It’s very hard to tell without analytics to look at the microstructural performance,” he said.

Similarly, for traders to be able to demonstrate that they consistently add alpha by timing when to trade is enormously valuable for the individual concerned, for the desk, the firm and its clients.

BestEx’s Eggleston said that the “justification” piece is becoming more important among buy-side firms, which execution desks need to do both before and after the trade.

“That justification is not just to their own boss or compliance group, or best ex committee,” he noted. “What we’re seeing more is when asset managers are trying to win mandates to raise their AuM, more and more the asset owner is asking to see evidence of their best execution process.”

That means evidence of how best execution is being monitored, and buy-side firms are now seeing from the asset owners’ RFPs explicit references to detail how that’s being done independently.

“It’s no longer adequate on an in-house basis. They need tools

and to have an independent entity or technology firm to do that,” he said.

And this kind of change in the industry reflects an ongoing evolution in the drivers for needing TCA and execution analytics.

MARKET MICROSTRUCTUREAside from regulatory or compliance driven factors, the performance aspect is where quantitative research in market microstructure is starting to embrace next generation technologies such as machine learning to deal with data. Market microstructure is the term used to represent the way exchange happens in markets, and research into it generally looks at how the functioning environment and processes

“On the one side, we solve it on the hard cost. On the other side, we solve it by giving people a transparent view that they can then have the discussion of market impact and trading related costs.”

Alan Schwarz




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of markets affect a variety of factors such as costs, prices and trading behaviours.

For example, machine learning algos can be trained to figure out when a certain venue delivers a good result given the time of day, a philosophy that can be applied quite broadly across the execution process.

“We are really keen on smart data, not big data,” says Eggleston. “You can have all the data in the world, but unless you can interpret it and actually draw conclusions from it and take action, there’s no value.”

Hopkins believes that you can’t begin to optimise execution performance without understanding market microstructure and how it affects trading.

Top market makers have been using analytics and related techniques for years to manage their businesses, because that has been the optimal way to drive their revenues - it is largely a commercial decision as opposed to a regulatory one, Hopkins said.

“In our discussions with market participants, on the buy-side in particular, there is an evolving awareness that this sort of analysis provides enormous opportunity for driving the next wave of innovation over the next five to 10 years; not just in satisfying the all-important

regulatory obligations but also to gain a competitive advantage,” he said.

This doesn’t, however, mean people need to deploy complex, black box quantitative models that are difficult or impossible to understand.

“We believe this is counterproductive, as it just moves the complexity from the trading tool to the measurement tool. It is essential that people are able to understand the information they are presented with, both so they can act upon it and explain it to other stakeholders, whether it be risk and compliance, management, regulators or their clients,” he said.

MAAS APPEAL“TCA is the first step along a ‘grand path’ of evolution with analytics,” said John Crouch, CEO of Ideal Prediction, an independent trading analytics and data science company.

Ideal Prediction provides bespoke TCA analysis based on the client’s own as well as sourced data. Its platform works on a Measurement-as-a-Service basis for FICC.

Those measurements are then used to determine actions to improve P&L. For market makers, that could mean optimizing client tiers, for market-takers, it could mean how to route flow to the best counterparties, and for ECNs, results could include improving volumes and client experience.

Crouch is one of the first to admit that there is “mendacity” in the machine learning space, and that the most important consideration to clients is whether the technology is actually performing the optimizations that firms want to get done.

That process begins not with technology, but with the definition of best execution for the firm.

“The market is starting to understand that there is not a single best execution. There are going to be multiple ways to measure execution quality, and each of these methods is useful for a different type of client.”

John Crouch



TRADING OPERATIONS

“Having a systematic approach to evaluating your goals is essential, but you first have to start by defining your goals,” he said. “The market is starting to understand that there is not a single best execution. There are going to be multiple ways to measure execution and each of these methods is useful for a different type of client.”

Then, it’s a matter of accumulating as many independent variables as possible, which in FX are factors that drive performance such as liquidity provider selection and what kind of algo is being used.

HEALTHY BEHAVIOURS Ideal is developing new analytics for monitoring the behaviour of algos to ensure they are behaving in a “healthy” way, which means that algo behaviour adheres to firms’ policies and is not disruptive to the market.

Both for makers and takers, this will reference the practice of last look, which has been hotly debated across the FX industry. There have been some major shifts in order to allay concerns, such as reducing the amount of hold time that’s available.

In this aspect, Ideal is evaluating the real cost to the client of rejected trades. Crouch said that cost is something that can be valued, and that there are “variations” across firms that are consistent. Some

counterparties, he added, have room for improvement in this regard, but the market is “self-correcting” too.

Ideal also has a tick data simulator, so clients can go back and simulate strategies to view P&L characteristics over historical data. “A lot of the challenge,” Crouch said, “is making sure clients feel comfortable with technology that often gets a ‘black box’ label.”

Ideal Prediction’s team is composed of data scientists and industry veterans who have themselves used machine learning for real-risk high frequency proprietary trading strategies. Crouch said that keeping it simple is key to getting buy-in from the industry.

“This is a world where humans are elevated by the tools that are provided, and they have a rich set to utilize, but ultimately, there is a lot of human judgement and oversight required for all these processes,” he said. “The market is going to have a lot of choices as it evolves,” he added.

In conclusion, GreySpark’s Bruckermann notes that TCA is a maturing and changing marketplace. “We anticipate TCA, both pre- and post- trade to be offered essentially for all FX trades down the road,” he said. “And that is purely based on the desire of the buy-side, because they are coming to understand TCA value not only for a compliance exercise, but for business enhancement purposes.”

FX isn’t wanting for data


In 2015 it was widely considered that FX electronic communication networks (ECNs) were in a sweet spot. The apparent ease of trading offered by ECNs was cited as a crucial contributor to the growth in FX market turnover during the last decade to the plus $5 trillion traded every day. The potential for FX ECNs

was seemingly spotted back in 2012 when an unprecedented number of new FX ECNs or trading platforms were launched. Depending on your definition of an ECN, there were as many as eight debuted in the opening half of 2012. The attraction of an ECN is easy to see – primarily there is the independence and

flexibility compared to a single dealer or counterparty, an advantage that was all the more apparent following the SNB crash in January 2015. Others will cite the depth of order book on an ECN, the multiple order types, the customised liquidity pools and the trading anonymity. And then there is the technology.

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Liquidity, Independence, Analytics and Transparency Why some Institutional FX ECNs still stand out from the crowd


Nicholas Pratt explores why Institutional FX ECNs are appealing to increasing numbers of trading firms many of whom value anonymity, low-latency and the ability to use special order types.

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FX E-COMMERCE & PLATFORMS

By using an ECN, FX traders can get access to deep and diverse liquidity, aggregation and execution through an ECN rather than having to build this functionality themselves.But while it is easy to build the case for the ECN against the single dealer platform or against building your own, in-house multibank trading engine, the question is how all of the ECNs will be able to compete against each other. And, as deep as the FX market may be in terms of liquidity, can the market really support so many ECNs in perpetuity?

TRANSPARENCYUse of ECNs has plateaued in recent years and as the market becomes more competitive, the latest battleground is ‘transparency’, says Tim Cartledge, Head of FX and Product Management, NEX Markets.

“Institutional and real money clients have a fiduciary duty to get best execution so they are more interested in transaction cost analysis, expected cost analysis and optimal ways of netting their portfolios,” says Cartledge.

NEX Markets has just launched a new service designed to show more transparency in the netting process to reassure clients that they are not being disadvantaged through this process. The NEX Quant Analytics service is available to clients trading on the EBS platform.

“Through the use of analytics, you can show the true costs of execution,” says Cartledge. “That is the theme – analytics, transparency and data. It is the new



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battleground for ECNs and it has been hotting up over the past year. Banks have been using analytics for 15 years or more but our clients are coming to this relatively late.”

EBS Direct’s analytics service also covers market impact, last look rejection rates, where markets traded, order book arrival times, spreads, liquidity at the top of the book and what clients are paying relative to others that trade through the ECN.

According to NEX Markets, the service is the most comprehensive, community-based analytics tool for its clients. And while banks and other platforms may use similar analytics internally, there has

not been a comparable service for analysing data at a market level, the company says.

Size is a factor in such a service, says Cartledge - the bigger the ECN, the better the data, citing the EBS “ecosystem”. And while initially clients just wanted a simple and standard set of reports it can very quickly get complicated when more complex requests are made.

For example, it is possible to analyse the market impact for each trade; whether you

overpaid or underpaid; of what was paid, how much was used for hedging; and the level of last look rejection rates and the cost of these rejections. Ultimately the service is designed to benefit both liquidity takers and providers by helping to create long-term, sustainable bilateral trading relationships at a time when such relationships are under threat, says Cartledge. “FX is a relationship-driven market where the relationship has all but gone. Some liquidity takers don’t care where the prices come from as long as they are the lowest. There is no common language,” he states.

RELATIONSHIPSAs electronic trading has increased and the use of aggregation has grown, there has been a tendency for liquidity takers to look solely at price and

Liquidity, Independence, Analytics and Transparency

Tim Cartledge

“Through the use of analytics, you can show the true costs of execution. It is the new battleground for ECNs and it has been hotting up over the past year,”

The level of transparency offered by ECNs through the availability of analytics may become an important differentiator

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not consider the total cost of trading or to view daily prices in a wider context and within a longer timeframe.

Additionally, the ‘relationship’ also has to be considered – ie, whether your counterparty will still provide liquidity at times of market stress.

Cartledge says that by providing more transparency, clients and liquidity providers can more easily assess each other’s behaviour and the quality of their relationship. “Everyone will hold everyone else to account, not just the LPs but also the clients.”

But while the data will tell a story, it will not tell the whole story – it may give an idea of ‘what’ but not ‘why’. To answer that question will ultimately involve a conversation between the liquidity provider and the client.

For example, a client may ask why they are being charged more than the average rate or why are they suffering high market impact. It may be down to the types of currency pairs or the time and manner of trading. Or it may be down to the way the liquidity provider is hedging. “Everything boils down to the transparency and the


strength of the relationship,” says Cartledge. “You build trust by giving them the same information and not being too prescriptive.”

Transparency is likely to become a more prominent feature for the FX market and the most useful tool for ECNs to address some of the market’s concerns that have arisen in recent years, such as trading in their own liquidity pools, artificially higher matching or opaque last look rejection policies.

But while most ECNs should have the capability to offer more transparency, not all may have the willingness, says Cartledge – either they may be embarrassed by the extent of their rejection rates or they may not be willing to divulge the extent of order routing in their own liquidity pools.

Consequently, the level of transparency offered by ECNs through the availability of analytics may become an important differentiator and, as Cartledge says, the best way to encourage good behaviour and long-lasting relationships between market participants.

DIRECT ACCESSWhen a market becomes more competitive, it can lead to consolidation and acquisitions. Cboe FX may be a relatively new name on the FX ECN market but its offering is one of the most established platforms. Back in

An ECN can also play an important role in

maintaining a relationship between counterparties


Bryan Harkins

“We want the market to be more robust, open, liquid, and transparent so that it better serves the investing and trading objectives of all participants,”



February 2017 CBOE Holdings spent $3.4bn on the acquisition of Bats Global Markets which had itself acquired the institutional FX ECN Hotspot back in March 2015.

“Trading via an ECN allows for true price competition among a diverse pool of participants and the ability to see – in one centralised location – the full depth of book,” says Bryan Harkins, Head of U.S. Equities and Global FX at Cboe Global Markets. “A growing segment of the FX market now sees the value of being able to access the FX marketplace directly via an ECN, rather than just accessing liquidity through multiple single bank relationships.”

The key attributes for an FX ECN are anonymity, deep liquidity, solid market quality and cutting-edge technology via a single and cost-effective connection, says Harkins. And from a technology perspective, it is also important for an ECN to provide liquidity aggregation, thereby eliminating the need for institutional FX traders to maintain numerous direct connections to multiple liquidity providers. Furthermore, an ECN should also allow participants to add liquidity to the book, joining the bid/offer and avoid paying the spread. To this end, Cboe FX provides pegged orders to its clients, says Harkins.

And from a liquidity perspective, it is important for an ECN

to have a broad array of participants, says Harkins. “It is the diversity of order flow and a competitive environment that improves market quality for all participants. Bringing together different types of customer flow provides greater opportunities to access best prices across an otherwise fragmented global marketplace.”

As FX is a decentralized and OTC market, it can be more complex than exchange-based markets, says Harkins. “An ECN can be leveraged by participants to outsource much of that complexity (both technology and execution complexity), and we welcome our customers’ appetite to do so.”

He also recognises the need for ECNs to manage the overall trading experience for its clients by offering customized liquidity and improving the quality of fills. “Today Cboe FX manages the liquidity profiles of both market makers and takers. For takers, Cboe FX has introduced and published market maker standards to ensure that the liquidity its customers interact with is accessible and real. For makers, we can measure the quality of order flow they interact with to ensure all trading is mutually beneficial.”

Just as NEX Markets has placed more importance on the use of analytics, one of the core areas of focus for Cboe FX has been building out their liquidity management and analysis capabilities. “Our liquidity management team works closely with clients to review analytics and helps instruct them on how they can execute their orders to improve execution quality. Because Cboe FX is an anonymous platform, we are able to share anonymous data with clients to help them understand the impact or opportunities that exist if they execute an order in a certain manner,” says Harkins.

While there are many factors for clients to consider before partnering with an ECN – from access and connectivity, securing credit lines, market


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quality, technology prowess, and operating standards, to name a few – Harkins also feels that transparency will be an increasingly important area for clients. “That is why we have put in place operating procedures and market maker standards, so participants know exactly how our marketplace operates and what the expectations are of our participants.”

The focus on transparency can hopefully enable ECNs to combat some of the previous issues of concern raised by some market participants, such as trading in their own liquidity pools, offering asymmetric slippage rules and creating artificially higher matching rates.

“Transparency is a core part of our business and we have always been focused on the highest standards of disclosure and fairness. We are able to maintain a transparent marketplace with full depth of book, guided by a straightforward set of

rules made available to all participants. Additionally, on Cboe FX customers have complete anonymity throughout the trading process from pre- to post-trade, which we believe is critical to creating a fair marketplace. Our matching logic is transparent, with all

investing and trading objectives of all participants,” says Harkins.

The other battleground for FX ECNs, in addition to transparency, remains technology and its ability to enhance capacity, improve performance and reduce

latency. Harkins says that Cboe FX has managed to halve its ACK times (an important measure of throughput) in the last 12 months – and plans to reduce these further before the year-end.

Cboe FX has also looked at ways to address latency issues on their clients’ side. “While our platform is well-engineered to handle a very high capacity, our end users aren’t always

equipped to absorb that level of quote traffic and access that liquidity in an efficient manner. To that end, we have worked to provide solutions so that customers can absorb increasing peak message rates by introducing features like a top-of-book feed, limited depth-of-

As FX is a decentralized and OTC market so it can be more complex than exchange-based markets

Photograph: Bart Sadowski / Shutterstock.com

orders on Cboe FX prioritized by price/time, with firm orders taking precedence over non-firm. Our clients have complete control as to who they interact with on the platform. We want the market to be more robust, open, liquid, and transparent so that it better serves the

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book feed and QuoteModify, which reduces quote traffic,” says Harkins.

CREDIT FACILITATIONFacilitating credit (access and mitigation) is also an important feature of an ECN, says Vikram Srinivasan, Global Head of Spot FX at 360T. “An ECN is a marketplace that brings together participant interests through varied credit facilitation mechanisms, under different disclosure models. Low latent trading infrastructure and options for risk exchange (such as trading protocols, order types) are ‘hygiene’ factors that in itself does not guarantee success of the marketplace, but rather enable participation. Anonymity is merely a bi-product of Sponsored Access credit facilitation, and in itself is not a driver of participation in an ECN.”

The 360T ECN has targeted participants who were challenged for market access due to the limited number of credit counterparties, says Srinivasan. “By decoupling credit from provision of liquidity, such participants have been able to leverage their credit counterparties for access to quality liquidity from a wide range of liquidity providers.”

The real value of an ECN stems from an efficient credit facilitation framework that can ensure maximum interconnectivity of participant interests, says Srinivasan. “Fragmentation of credit results in fragmentation of liquidity and hence hinders efficient risk exchange. Which is why, a participant on 360T can, through a single credit line, gain access to an entire portfolio of order flow for liquidity providers, or gains access to all liquidity on the venue for traders. In an era of constrained credit, consolidation of lines culminates in their efficient usage and facilitates unhindered access to deep, tight liquidity. The beauty of an effective credit facilitation framework is that it takes relatively little effort to enrich or extend the mechanisms for risk exchange, to better

match participant intent with liquidity, enabled by data and technology.”

Newer ECNs such as 360T also have an advantage over some of the older, more traditional ECNs in terms of a more diverse range of participants, says Srinivasan. “Traditional ECNs started as such, as they offered a simple path to scale the marketplace. As a result, they lack the breadth and diversity of participants. Primary marketplaces and ECNs are considered neutral venues for price discovery. However, fragmentation resulting from inefficient credit facilitation and the lack of real unique order flow dilutes this value.”

In contrast, a venue with a diverse client base brings unique order flow which translates into more accurate view of the interests in the market and hence more effective price discovery. This diversity also facilitates risk exchange between participants who may not be able to otherwise come together, such as two traditional buy-side participants passively exchanging interest, says Srinivasan.

BEST EXECUTIONECNs have also become the most effective way for clients to achieve best execution, say the ECN operators. “A market operator is uniquely positioned to observe participant intentions and

Vikram Srinivasan

“ECNs have long been a utility service. They need to evolve to span the breadth and depth of offerings needed across complete FX lifecycle,”

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liquidity quality of service,” says Srinivasan. “In an undisclosed marketplace, it is the market operator’s responsibility to bring these interests together for risk exchange transaction that is beneficial for both parties. The venue can tailor and curate the liquidity and trading mechanisms to the participant’s execution style and desired outcomes, be it large-sized Immediate or Cancel (IOC) executions at best price, or full amount risk transfer, or passive risk offsets.”

Despite the anonymous nature of the execution, an ECN can also play an important role in maintaining a relationship between counterparties if it takes on a more consultative role, says Srinivasan. “The lack of a relationship between trading participants is bridged by the market operator assuming the role of a liquidity manager to guide liquidity counterparties to tailor liquidity and price to be competitive, and attract profitable order flow. The market operator also

stands to advise the trading counterparties on directing order flow into appropriate liquidity pools through effective execution styles to achieve the desired trading outcomes, be it best price, fill ratio, market impact, or any combination of these. 360T delivers superior analytics across all of these dimensions to enable effective matching of participant interests”

And just as with other ECNs, Srinivasan also believes that

The Solid FX ECN launched eight years ago in the Netherlands and was founded by Diego and José Baptista, two brothers with a background in FX and equity trading.

They believed that the business model of existing FX ECNs could be improved by focusing on tailored liquidity – spot FX and metals only – and investing in relationships with clients and partners.

“To us, the relationships with our clients and LPs are at least as important as performance and price competition,” says Marco

Westerman, Solid FX’s Head of Relationship and Liquidity Management. “We invest a lot in analysing and managing LP-client matches. It is not always easy to keep everybody satisfied, but we always aim for long term business success for all parties involved.”

“Another important aspect of our relationship management is good customer support. Our operations team is very knowledgeable about the technical side as well as the trading side of our business. Oftentimes, the quality of support suffers as a company

Solid FX – an ECN built from the ground up

Marco Westerman

“Technology is our day to day job. We build our ECN completely in house, so we are not dependent on third parties.”

Marco Westerman




transparency is a crucial element in helping ECNs to counter any concerns about trading behaviour, execution inconsistency or liquidity manipulation. “360T fundamentally believes in transparency and allows clients complete discretion in managing the parameters driving the execution algorithms. The client is then provided transparent reporting on how each order was handled, what the market conditions were,

how the algorithm behaved in accordance with the user defined strategy, and what were the outcomes in terms of execution quality and transaction cost. 360T is regulated by the German Federal Financial Supervisory Authority (Bafin) and adheres to the highest standards of transparency for an OTC marketplace,” he says.

Srinivasan also believes that an ECN’s history of operating a transparent and regulated

marketplace is one of many factors that should be considered by institutional participants before partnering with one. Other considerations include ‘hygiene’ factors such as connectivity, maintenance, execution quality and the value added by the ECN comes from longer term reduction in cost per transaction “When the market interaction intentions do not match the appropriate quality of service of liquidity, the longer term result would be increase in transaction costs

grows larger: clients have to wait longer, get referred to different people and deal with a lot of red tape. That is not how we would want to be treated, so we take care to do it right for our customers.”

Solid FX is essentially an IT company. Westerman: “Technology is our day to day job. We build our ECN completely in house, so we are not dependent on third parties. That give us an edge over the competition and allows us to be flexible in our infrastructure choices. It also means that the quality of the Solid FX platform is in our own hands, so the IT guys really have to be on top of the curve.”

Solid FX continues to grow. Not only has the workforce doubled in size in the last two years,

the company is set to launch a trading hub in TY3 (Tokyo) in addition to their existing hubs in London and New York.

“We invested a lot recently in new, faster and more robust hardware,” says Westerman. “And we are expanding, as we see demand for our services in Asia.”

When asked about the client base, Westerman replies: “Years ago, it was mostly broker/dealers and trading houses. But now the client base is much more institutional – asset managers and regional banks – and much more global. These clients have different requirements, for example, our liquidity managers are now very focused on keeping the rejection rates as low as possible.”

Westerman agrees that transparency is an issue in the market. “Transparency is paramount at Solid FX: there are no unexpected or hidden costs after the fact. On the technical side, clients can connect to our interface directly or use our trading GUI. It is not necessary to use a third party infrastructure provider, so our clients don’t have to pay additionally for infrastructure either. All of this keeps our pricing structure very clear.

“And finally, we send our clients monthly reports with their trading results. Though the counterparties remain anonymous, as is the nature of an ECN, the client is able to analyse their performance and go into specifics with our liquidity managers. The FX business is complicated enough, so we try to keep it as simple as possible for all involved.”



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(by virtue of deterioration in spreads, longer hold times, market impact) and much worse, loss of depth. To ensure a sustainable outcome in the longer term, the market operator needs to actively steer participants,” says Srinivasan.

A good ECN should also invest in new technology to ensure performance, improve capacity, reduce latency and enhance their core value propositions. But, says Srinivasan, the real differentiation with an ECN comes in terms of their ability to possess unique sticky order flow, and non-discretionally (through data and analytics)

match participant intentions to appropriate liquidity pools through optimal execution strategies. “For example, anyone with technology can run a matcher, or a mid-book, but without unique order flow, it will merely be a recycled pool from other markets. On the other hand, possession of real order flow creates unique liquidity in itself can be channelized into new market models for execution,” he says.

And when it comes to positioning themselves for future growth, ECNs need to expand their focus to cover more services within the FX

trading world, says Srinivasan. “ECNs have long been a utility service. They need to evolve to span the breadth and depth of offerings needed across complete FX lifecycle. And by looking at the complete lifecycle, opportunities are presented in addressing challenges in the marketplace that far exceed simple execution management. And only by solving such challenges can clients reduce the total transaction cost beyond simple execution cost savings. Those venues that do address the big picture will see their client base grow in both size and loyalty,” he concludes.

A good ECN should also invest in new technology


Chris Twort

Tell us about your background and your role at IS Prime.

I joined IS Prime when the fi rm was founded in 2014, having spent 20 years as a Spot FX Trader in a range of banks including UBS, Rabobank and Royal Bank of Canada. My initial role was to get the Agency Execution business off the ground and subsequently my remit has been to develop and grow it.

What is the Agency Execution service that you offer?

It’s a separate technology and liquidity environment which has been created specifi cally for our institutional client base, leveraging the strong relationships which our Prime of Prime business has with top tier banks whilst also utilising the impressive technology resources of ISAM’s hedge fund business. We have an agency platform, which is backed by a leading UK


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Spotlight: IS Prime’s Agency Execution business

banking institution on the basis of a centrally cleared model. We offer liquidity via an API or GUI, with a multitude of execution order types and extensive algorithmic capabilities. We can provide clients with a deep, anonymous and unique liquidity solution, with competitively priced liquidity from the major market making banks, non-bank LPs and selected ECNs. It’s a highly customised service tailored to specifi c client requirements.

Who is the service aimed at?

Hedge funds, mid-tier and smaller banks as well as voice traders. The combination of our technology, liquidity and experience has resulted in us growing a prestigious client base. As a result of our extensive technological capabilities, our team can work with a broad spectrum of technology including clients’ proprietary platforms and all third party vendors.

FCA regulated IS Prime is renowned for its breadth of services. In addition to being one of the fastest growing and most successful Prime of Prime brokerages, the fi rm also provides multi-asset execution across Tier 1 aggregated liquidity venues and has a highly reputable Agency Execution business which offers a compelling service to institutional clients. e-Forex talks to Chris Twort, who heads up IS Prime’s Agency Execution business, to fi nd out more.

What are your future plans?

We are continuing to expand our team and in 2018 are aiming to widen our product range as well as to grow our client base. Our initial focus has been on building the business in the UK and Europe but we now have plans to leverage the fi rm’s relationships in other regions such as North America, the Far East and Middle East.

IS Prime is part of the ISAM Capital Markets Group which also includes IS Risk Analytics and IS Prime Hong Kong. For further information, please visit www.isprimefx.com

079 IS Prime SS.indd 1 15/12/2017 09:57


LMAX Exchange, the leading FCA regulated Multilateral Trading Facility (MTF) for FX, was established in 2010. Headquartered in London, the firm has developed a global presence with client base in over 100 countries and matching engines in London, New York and Tokyo. LMAX Exchange operates a central limit order book with streaming firm limit order liquidity from the top global banks and non-banks, delivering the benefits of exchange quality execution to both buy- and sell-side trading institutions. e-Forex talks with David Mercer, CEO of LMAX Exchange, about proving the exchange execution model as a better, more transparent and fair alternative to trade FX.

David Mercer at LMAX ExchangeSpeaking with a devout exchange evangelist

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080-091 eForex Interview.indd 1 15/12/2017 09:58


THE e-FOREX INTERVIEW

David Mercer


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David Mercer at LMAX Exchange

David, when we last interviewed you two years ago LMAX Exchange had just sponsored a team in the biennial Clipper Round the World Yacht Race. You then joined for race six of the 14-stage series, with Team LMAX Exchange going on to be crowned the overall winners. How inspiring was this experience for the company and you personally?

It was a fantastic experience for the brand overall – both for all our employees as well as our clients and partners. It was quite a feat. I particularly valued the team ethic which came from being part of a 23-man crew. What I discovered very quickly was that if one of you

didn’t perform, then you were in for a bumpy ride. So it was in fact very similar to running a company. At LMAX Exchange we’re quite eclectic and when we started talking to the market about our approach back in 2011 no one had heard of us, or were willing to give us a chance. Yet here we are, seven years on - now we’re halfway through the race and I think we’re well positioned as we approached the finish line.

And of course 2016 was a notably good year for LMAX Exchange, as you were able to build on your technology investments in 2015 while also continuing your strong growth trajectory. How has 2017 turned out?




You also set out to prove that the exchange execution model based on central limit order book (CLOB) with streaming firm limit order liquidity, supported by best of breed technology and unparalleled market data, is the only way to trade the world’s largest asset class. Has that proved more difficult that you anticipated and how successful do you think you have been so far?

We have a proven concept that this is an efficient, fair, transparent way to trade FX at a lower trading cost. Our partners prove that point, over 100 brokers in the world prove that point, over 23 banks connected prove that point, over 10 of the world’s largest proprietary trading firms prove that point. So everything proves that it can work. But has it been more difficult than we thought? The answer is yes.

We haven’t won yet. We haven’t convinced 100% of the market that ours is a better way to trade. But I think we’re getting there. It’s always good when you set up to transform an industry - or to bring something new to have a certain amount of naivety. We certainly had this back in 2011. A naivety that comes with the belief that you can change it all with just the flick of a switch. But the reality is that in an established, complex, global OTC FX market, a new player

All things being well, I expect it will be our best year to date. Certainly Q3 2017 was our best quarter ever across every metric - and within that we also had a record month.

It’s very exciting and the flow of our business is more diverse than ever, but we also strive to lead the market and we are a long way from that just now. So we can’t be complacent and need to extend and expand every year. I think we’ve done that.

I’m naturally ambitious - and I suppose a hard taskmaster - so it’s never quite enough, yet all I can ask is that every year is better than the last.

Clients have been attracted to Saxo by its secure environment and overall stability,

as well as its capital ratios


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with a simple idea wasn’t going to change it overnight. And yet it is changing, albeit gradually. I hope we’ve added to the market structure debates and that we’ve added to greater transparency that you see in initiatives like the FX Global Code of Conduct,

rather than just being an irritant to the establishment.

So we’ve certainly had something to do with the erosion of ‘last look’ hold times, the greater move towards transparency and improving market access

for clients. I think we have also helped sell the benefits of CLOBs and firm liquidity, which has in turn helped the FX market move to a better place. But as we mature, we’re aware that perhaps we have to be more pragmatic in our approach.




How has the make-up and global presence of your client base changed and grown over the last year?

We are trying to cover the globe in terms of client base so we now have a matching engine in London, a matching engine in New York and a

matching engine in Tokyo. We also have a regulated broker in London and Hong Kong, an operating presence in New York, Chicago, Singapore, Hong Kong and London, in addition to development offices based in Auckland and Brisbane.

So we’ve got the world covered. In terms of liquidity provision, we now also have most of the world’s leading banks, proprietary trading firms and non-bank liquidity providers connected. And for buy-side flow, we’ve done very well in

the broker space - and to a certain extent in the introducing broker segment as well – as well as having a strong footprint in terms of proprietary trading firms and small funds. Those two segments comprise around 80 percent of our flow.

Where we need to do better going forward is in the real money and asset management space. And then on the product itself, we have a long way to go in terms of adding the full remit of FX product to include swaps and options as well.


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Earlier this year LMAX Exchange published a white paper offering a new blueprint for FX TCA that leads to more consistent calculation of FX trading costs across different types of liquidity. Why do you think the current system for assessing the true cost of trading is broken and what can be done about it?

This is a very important step for LMAX Exchange. We put a lot of time and effort into this research paper in order to help educate the market and help pinpoint what we think the key metrics, or standardised metrics, should be across the industry. And if the buy side can measure these five key metrics, then they will be able to answer all seven execution factors which MiFID II mandates them to produce.

But do I think the current system is broken? It’s broken in that it’s far too complicated for a client to assess their cost of trading and to demonstrate best execution. FX is a diverse, OTC market and some asset managers are just not sure

where they are supposed to get their market data from or how they are supposed to calculate “best execution”.

It is a big scary term and a big scary question, so we broke it down into bite size chunks and arrived at five key questions, or metrics. And you can tell that we did this for the benefit of the industry because we didn’t even win in all five metrics, but we believe that across all metrics we are the best overall.

We believe that we can convince the market place that fairest execution, lowest cost of trading and certainly the greatest transparency of trading will be on a CLOB with firm liquidity. But it’s really a case of caveat emptor – buyer beware. We break it all down for them and show that it is just basic arithmetic if they have the right market data, and if they don’t - their liquidity provider, venue, bank or non-bank market maker should be able to provide it for them. Then they can truly compare different styles of execution and arrive at the right answer for their style of trading.

LMAX Exchange has always been a strong advocate of FX market reform and you became the first organisation to publicly commit to the FX Global Code of Conduct. How does the Code, as well as broader regulatory change in the markets, impact your business model and value proposition?

Asia-Pacific has always punched well above its weight for LMAX Exchange and the region was an early adopter of our business model




I believe the regulators, as well as the rest of the industry, will have to move more towards our model. It’s as simple as that. We complied to the Principles of the Global Code for seven years before it was even launched and we also go a step further in terms of the contentious wording of Principles 11 and 17 of the Code. Principle 17 has recently been altered - but trading in the last look window simply isn’t available on LMAX Exchange, because we don’t have a last look window.

And it is a similar picture in terms of where we stand on regulatory change. MiFID II’s underlying message is about fairness and transparency, which also plays into our business model because trading on

a CLOB and trading on firm liquidity ticks both boxes. I think regulations and the Code of Conduct are moving in our direction. It doesn’t alter what we do. That’s why it is so easy for us to sign a commitment to the Global Code.

The real challenge here is for the industry to grasp the metal and show that it can really change. I fully support efforts like the Global Code if that’s what we get to, but the industry must show it collectively. We can help ourselves by enforcing change now.

How strategically important is the Asia Pacific region to LMAX Exchange and your global growth agenda?

Asia-Pacific has always punched well above its weight for LMAX Exchange and the region was an early adopter of our business model. To be honest, back in 2012/2013 that came as something of a surprise. So we kept on investing heavily in that region. We put a matching engine in TY3 three years ago, we established a regulated broker in Hong Kong two years ago and we established a regional hub in Singapore just recently. I even moved one of my key resources, former COO Scott Moffat, to be the Managing Director for the region.

It’s a key area, both for LMAX Exchange and the wider FX industry. Today it represents


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around 30 percent of our revenues, slightly less in terms of trading volumes. Globally, I think it is going to be very important for the capital markets industry going forward and for us especially in the next five years.

A lot of your liquidity providers are based in New York and Chicago - and you have also continued to expand in the US institutional and interbank client segments since the launch of your North American matching engine in New York (NY4) in 2016. How much potential growth do you see for LMAX Exchange in the US?

In many ways, it is a much more mature FX market than Asia-Pacific - but we were rather late to the party. That was a decision

we made three or four years ago. It is a very important region for the FX industry, accounting for approximately 20% of the global FX market, yet when we were a smaller company we simply couldn’t spread ourselves too thin. We had to choose between Asia or the Americas. But now we cover the globe.

The challenge is that the US is a very mature market and it is already very well covered by all the major competitors. But I’m confident that the results we’ve had in other areas of the world will also help us accelerate our growth in the Americas. We were able to establish a matching engine in NY4 over a year ago. I’m very pleased with the progress and we’re adding staff all the time. Just in the last quarter, we onboarded some 20 new significant clients. The

hard part is to persuade them to move their trading volumes from other venues and liquidity providers to LMAX Exchange.

What efforts have your IT team been making over the last year or so to build upon your proprietary, ultra-low latency technology?

It’s a constant focus for us. At least half of my budget is spent on technology - and the other half was developed by technology. We rewrite about one third of our code

One of our key strengths is that we are a truly multi-asset financial markets facilitator with one IT stack across all asset classes




MiFID II. A lot of our time in the last six months has been spent dotting the i’s and crossing the t’s, making sure that we’re ready for the January 2018 implementation. But I’m happy to say that we are well on track.

What about your product offering? Have you expanded this in any way recently, for example with respect to pricing, or launched any new features and functionality for clients?

Probably the biggest thing we’ve done is added depth of

base every year. A lot of that is simply learning new ways to become more robust, to become more scalable and to be able to process more messages in a shorter period of time. So performance and capacity are always number one on our list.

The biggest thing that feeds that engine is the people. I never turn off the recruitment tap and am always on the lookout for the best new brains in the area of low latency technology. We also spent a lot of time over the past 12 months developing our trade analysis tools, which we

talk about in our FX TCA white paper. I can now demonstrate to our clients the impact of all five TCA metrics on their total cost of trading; these metrics are fill ratio, price variation (price improvement or price slippage), hold time, bid-offer spread and market impact. So now we have some of the best analytics tools in the market freely available to all of our clients, all the time.

But there has been an additional overhead in the capital markets industry over the past twelve months, which was caused by

“I never turn off the recruitment tap and am always on the lookout for the best new brains in the area of low latency technology.”


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liquidity to all our exchanges - LD4, TY3 and NY4. We’ve also added the odd currency pair and improved our world leading gold product. But perhaps the most significant change has been in improving our offering for retail brokers.

We now potentially have the best offering in terms of connectivity, liquidity and cost of trading for retail brokers in the world. It’s a bespoke offering for that important section of the market. It services the end user of any size, from the smallest to the biggest, and services the whole industry because liquidity providers and market makers crave that flow. It’s been one of the most pleasing parts of the business this year and has already

seen some 40% growth in 2017 alone. We’ve done very well and are looking to further enhance our offering and better service that segment of the market.

You have told us before that you believe there’s a revolution in the capital markets coming, and the Blockchain distributed ledger technology will lead the way. e-Forex is increasingly focusing on developments in this space and also looking at the technology and platforms required to trade cryptocurrencies and access crypto liquidity. In what ways is LMAX Exchange looking at getting involved in these exciting – yet in some cases potentially risky - areas?

We rewrite about one third of our code base every year




We are big believers in the long-term use of blockchain technology, so we are engaging with a number of partners on its use in settlement and clearing. It’s very exciting for the whole capital markets industry, but for it to change the market there has to be widespread adoption by the majority of the market.

But foremost in our minds in the last two years has been the risk around cryptocurrencies and it has probably prevented us from entering the market in any significant way. I don’t think we’ll stay out of market forever, but we might need cryptocurrencies and crypto-

assets to become slightly more mature before we make a larger entrance in the market. We need to focus on our core offering in fiat currencies first.

What steps have you taken to protect LMAX Exchange against any downsides arising from Brexit and the ongoing uncertainty about the preservation of access to the single European market?

We have researched regulation in other European jurisdictions, we have researched the cost of moving and what exactly would have to be moved if there is a hard Brexit. We’re very fortunate that over two-thirds of our business is conducted outside of the EU zone – and in many ways the FX market protects companies like ours from a hard Brexit. Like many smaller entities, we can afford to sit back and wait until 2018 before we have to make a decision.

If we had to move our business, we could do that within three to six months. But I’m still of the opinion that it won’t be necessary as they will most likely realise that we work better with common ground, if not a common market, and that there are benefits to having a strong trade agreement - which

hopefully will include the capital markets space as well.

Finally, what’s at the top of your “to do” list for 2018 and how will you be looking to further diversify and grow your client base?

Get even bigger and better. We know where we are, we know what we’re good at - and we know what we’re not so good at. We have to build on our strengths, which are our certainty of purpose and expert technology. But we need to be able to talk to more clients, in more segments, in more geographic locations, and more frequently.

We also need to expand our foreign exchange product, which means moving into products outside spot FX in 2018/19. NDFs will be launched at the start of next year and we’ll start looking at the FX Forwards and Swaps market as well, and potentially even FX Options further down the line.

Ultimately, we need to grow our revenues and our client base, as well as becoming more relevant in the institutional space. We have to prove that the exchange execution model is the best, most transparent and efficient way to trade FX – both now and for the future.

Link to white paper: https://www.lmax.com/FX-TCA-Transaction-Cost-Analysis-white-paper.pdf


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Adrian Patten and Andy Coyne co-founders of Cobalt

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MEETING THE PROVIDERS

Founded in 2015 with the audacious vision of re-engineering post-trade FX using distributed ledger technology, Cobalt has partnered with key participants including Citi, XTX Markets and Citadel. As the company prepares to launch its service in the coming months, e-Forex talks to co-founder and chief executive Andy Coyne about Cobalt’s journey so far and its ambitions for the future.

Cobalt closes in on Q1 launch

e-Forex: How did Cobalt come into existence?

Andy Coyne: Cobalt was established two years ago as a start-up focused on post-trade FX. Co-founder Adrian Patten and I had both spent our careers in the FX industry and we noted a few important things that were going on at the time. The industry was increasingly challenged on a cost basis, mainly because of the impact of regulatory overheads and the increasing competitiveness and transparency that is required in execution. Increasing cost and falling revenue were driving the profi tability of the industry downwards. Everyone was focused on cost, whether it came from processing, balance

sheet or risk, and we spent some time looking at what the industry really spends on post-trade FX. We believe the collective number is roughly $20 billion, so the industry has a huge spend on something that fi rms don’t really compete on and is highly ineffi cient.

EF: In what ways is Cobalt taking a fresh approach to post-trade FX?

AC: Our launch coincided with a lot of noise around blockchain, so we spent some time looking at whether blockchain could address the issue and resolve the cost burden for our client base. There were elements of it that made sense and some things that didn’t make sense




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for a private marketplace like FX. We began the design with the aim of re-engineering post-trade FX. Our advantage was that by starting from scratch without the need to protect legacy infrastructure, we could do things in the right order. Our goal was to bring post-trade FX up to speed, because it has tended to lag in terms of technological capability for a marketplace that is so fast and liquid. We came up with a ledger-based technology stack that does things in a logical order and is much more efficient than the status quo. It is currently only for FX, because FX is our core competence and has a big enough set of problems to tackle. We want to make sure we deliver properly for FX before going cross-asset.

EF: How big is the Cobalt team?

AC: We have 11 employees and have built up the technology team this year as we move towards live production. Adrian Patten chairs the company and Devika Darbari is our chief operating officer. We’re a small company but that makes us nimble and focused – we’ve been able to move very rapidly from the design phase to testing, and we expect to go live in the first quarter of 2018.

EF: What is involved in joining the Cobalt network?

AC: We have designed it in

such a way that allows market participants to migrate to the shared environment while legacy infrastructure continues to exist because there can’t be a big bang. Firms will migrate their flows on a relationship basis, so Cobalt can work alongside legacy systems while reducing the immediate costs and giving participants time to exit legacy infrastructure. The problem the FX market faces is that everyone essentially does the same thing but they do it with different systems and nomenclature, and what has been created over time has become very messy.

EF: How does Cobalt use distributed ledger technology (DLT)?

AC: The key priority for us is trade immutability, making sure that transactions are quickly and securely processed and cannot be subsequently altered by a third party. We have worked on this with the industry and

will deliver it as part of the solution. There has been lots of experimentation with DLT but there isn’t yet a single network that any group of banks has completely agreed upon, so it is taking time for the industry to move to a common ledger infrastructure.

EF: What is Cobalt BlueSky and how does it fit into your offering?

AC: Cobalt BlueSky is our store of shared transactions and from that we run a series of post-trade services. We recognise that firms use other service providers that they want to grant access to the data, and clearly every party to the trade has its own data set that it may need others to access. Examples of third party services might include multilateral compression or transaction cost analysis (TCA), so BlueSky becomes the marketplace where a third party can provide services to ledger participants.

EF: What specific part of the FX trade lifecycle does Cobalt target?

AC: It’s the post-trade, pre- settlement processes. The pre-ledger environment will make sure the trade is good; it passes credit; it passes matching and a unique shared copy of the trade is created on which every party agrees. Once on the ledger, that’s a golden copy of the trade and then there are

Devika Darbari is our chief operating officer




straightforward services such as aggregation and netting that can take place to maximise efficiency.

EF: How much interest has there been in Cobalt so far?

AC: I think we are suitably differentiated and the timing has been very good – the industry is ready for a change in post-trade FX. We have 22 banks and buy-side firms involved in beta testing the system and we plan to go live in the first quarter of 2018. Cobalt is open to all participants active in the FX market and its design is indifferent to the classification of market counterparties. Obviously the major banks are of significant interest because they account for so much of the

flow and may bring their client base with them. We focused initially on the major banks, but we’re seeing a lot of interest from the buy side as well.

EF: What kind of cost savings might be gained by using Cobalt?

AC: There are several layers of cost and it’s important to understand the short term and longer term impact. In the short term there could be a significant difference in cost because we’re using very fast and well-proven technology. Every institution has its own unique cost base and it is our goal to simplify all of that. Depending on a firm’s size and complexity, it could spend up to $1 billion

on post-trade FX, so there is a huge amount of expense that we think is unnecessary. We believe the market is ready to share the infrastructure because processing FX trades should be very straightforward but somehow the market has made it very complicated and costly. Now is the time to unbundle all of the layered systems and get back to how it should logically work through a shared infrastructure where everyone pays a fraction of the existing costs.

EF: What impact might blockchain technology have on the FX market?

AC: Having worked at a number of large institutions, we’ve seen

Cobalt BlueSky is our store of shared transactions and from that we run a series of post-trade services.




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Utopian view of capital markets using blockchains

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how they operate and what potential showstoppers will slow things down. We’ve factored in the reality of legacy structures that will continue to exist as institutions unplug systems and take them out of commission. Awareness of how the market works has been key and we’ve factored that into the design of the infrastructure. As the industry coalesces around a common platform, they may bring further requirements to the table to solve other issues, such as clearing or regulatory reporting. There are many areas where banks will want greater effi ciencies without having to build their own solutions, so I think we’re well set up to help the industry migrate to DLT.

EF: Why is Cobalt choosing to partner with other technology providers?

AC: Some of our partnerships are infrastructure related, so we are working with Solace and BT Radianz to enhance our data and connectivity capabilities. We have to operate to certain standards for a market of this size, so partnerships are key – we are working with LMRKTS and BestX to deliver compression and TCA services through our ledger. This creates a richer experience for our clients and a more powerful offering.

EF: What can we expect in the future from Cobalt?

AC: We have a lot of ideas around how to make the ledger infrastructure more valuable and we’re going to do that in collaboration with our membership, so adoption is key. The more adoption we can achieve, the greater the effi ciency becomes. It’s a shared infrastructure so we have to build collaboration around it.

e-Forex has been published for over 17 years and pioneered international coverage of

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Register for a FREE trial now at

www.e-FOREX.net

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Launched by FX industry veteran David Rutter, R3 now operates in nine countries with 140 staff and is aiming to re-build the operating system for the financial services industry through a series of partnerships. e-Forex talks to head of external affairs Charley Cooper about the strengths of R3’s Corda platform and the potential of distributed ledger technology in FX and beyond.

R3 grows more ambitious as its network widens

e-Forex: When was R3 launched and what is it trying to achieve?

Charley Cooper: We launched the company in September 2015 with nine banks and that number quickly grew to 42 by the end of the year. We’re now at more than 100 banks and have another 60 partners. We are developing Corda, which is our enterprise grade distributed ledger platform, designed specifically for financial services.

We designed the platform with the requirements of all of our bank members and regulators in mind, but in so doing we found that the platform could have applicability more broadly across various commercial enterprises. Our network connects to various financial companies and we partner with them to build top-of-stack applications that solve specific business problems. Examples include syndicated loan systems, post-trade derivatives processing, anti-money laundering (AML), know-your-customer (KYC) and regulatory reporting. We use a partnership strategy to build the apps that sit on the Corda platform to solve specific problems for businesses in the real world.

EF: How would you describe R3’s mission?

CC: We’re trying to build the new operating system for the financial services industry, based

on the best enterprise grade distributed ledger system that will underpin different asset classes and jurisdictions. We are part of the blockchain family of companies, but we have made critical design decisions that set us apart. We have taken the best attributes of blockchain that make sense for our clients and we’ve made changes to others. For example, one of the key issues for our clients has been the issue of data privacy. In a traditional open ledger system, all parties on the ledger get to see all of the data, even if it’s encrypted. The difficulty with that is not only does it require a massive amount of computing power, but it also means parties to a transaction can’t necessarily shield their data from non-parties to the transaction.

EF: How does R3 deal with data privacy?

CC: Corda’s approach to data privacy and security is ground-

Charley Cooper

098-103 R3 Blockchain and Cryptocurrencies.indd 1 15/12/2017 10:04




breaking in the blockchain space, as Corda only sends data to those who have a “need to know”. This unique feature of Corda addresses the requirements of financial institutions that need to ensure the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure. Whereas some DLT systems were built to disintermediate banks, we have intentionally built this to integrate with bank systems. By building our system to integrate with the existing ecosystem rather than turn it on its head, we’ve been able to avoid the problems some others have faced and onboard clients and partners at a quicker pace.

EF: How is R3 different from other distributed ledger technology companies?

CC: The ledger itself is different, in that we built it ourselves,

and the network component is also unique. There are core components that are critical to the functioning of any ledger, and they allow the applications to work. Identity is one example, because if you and I don’t know that we’re

trading with each other, and we haven’t been able to solve that identity problem, then we’re not able to run AML or KYC on one another, and we’re not able to track the trades we do with each other. We have

One of the key issues for our clients has been the issue of data privacy.

The diagram above, (the vision Corda is attempting to help realise) illustrates a progression from a world where parties to shared facts record and manage their own records, with associated discrepancies and duplications (“Bilateral - Reconciliation”) or one where parties

delegate control and responsibility over critical processing to centralised utilities (“Third Party / Market Infrastructure”), to one where they collaborate to maintain a shared record, assured to be consistent between them, consuming the services of existing and new service

providers and market infrastructure providers on an open and competitive basis (“Shared Ledger Vision”).




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worked with Calypso on post-trade FX processing and that has a set of core components that we need to be able to track all the trades that the members of our system are doing.

EF: How far advanced are your partnerships?

CC: They are all in different states of maturity, but we have several specific partnerships that will result in commercial applications being brought to market in 2018. The partnerships span different asset classes, but what they have in common is that they seek to target those business problems that are most antiquated and rely most on legacy systems.

EF: How big is the R3 team and who are the key staff on the management team?

CC: We have 140 staff in nine countries, and our key hubs are in New York and London. Singapore is our Asia hub, and our clients

represent more than 30 countries globally. We no longer see ourselves as a startup, but rather a small- to medium-sized business. We’ve raised $107 million in capital and expect to raise more. David Rutter is our founder and we have three key staff on the technology side – Richard Gendal Brown is our chief technology officer; James Carlyle is our chief engineer and Mike Hearn is our lead platform engineer.

EF: Which areas of FX could benefit most from DLT?

CC: Across asset classes, there are common areas such as operations and processing that are broken and need fixing. By contrast, trading platforms complete trades in milliseconds and in some cases microseconds. There’s no point in trying to convert that trading process to DLT at this stage because it is actually working quite well. The problems we’re attacking are the much more substantial ones that require wholesale solutions.

In Corda, updates are applied using transactions, which consume existing state objects and produce new state objects. Consensus over transaction validity is performed only by parties to the transaction in

question. Therefore, data is only shared with those parties which are required to see it.




R3 (formerly R3 CEV) started out as a family office. The “3” stood for the number of co-founders including David Rutter the CEO.




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There are definitely parts of the FX market that are not as efficient as they could be and we think DLT is a great way to solve many of those problems.

EF: In the longer term, do you see DLT becoming more pervasive in FX?

CC: FX is the largest market in the world, and while we’re focusing only on parts of the post-trade space right now with Calypso, this is a market that I think could be greatly enhanced by moving the entire trade lifecycle onto the ledger. We are working with some of the biggest players in the FX market so you could see a migration over the course of several years and we could be the company that does it. The potential is absolutely massive.

EF: What attracts financial institutions to join R3?

CC: The power of this technology is in the network effect – the more people you have working on the network, the more powerful it is, the more useful the tools are, and the more efficient the overall ecosystem in any particular asset class can be. In becoming part of that ecosystem and having a seat at the table, firms multiply the benefits for everyone. We wanted our clients to be involved in the process from the very beginning, rather than building the technology without

The core concepts of the Corda model are:

• State objects, representing an agreement between two or more parties, governed by machine-readable Contract Code. This code references, and is intended to implement, portions of human-readable Legal Prose.

• Transactions, which transition state objects through a lifecycle

• Transaction Protocols or Business Flow, enabling parties to coordinate actions without a central controller.

Determinism is maximised and the amount of shared state required minimized by selectively and decisively restricting the universe of allowable programming techniques. The combination of state objects (data), Contract Code (allowable operations), Transaction Protocols (business logic choreography), any necessary APIs, wallet plugins, and UI components can be thought of a Shared Ledger application, or Corda Distributed Application (“CorDapp”).

Summary of the Corda Model

EF: Do you have any partnerships that touch FX?

CC: Yes. We have partnered with Calypso to build a DLT application for trade matching confirmations. Westpac, ING and BBVA are among the institutions that will use Calypso’s processing capabilities to enter FX trades into a node on Corda, validate them and confirm matching.

EF: How much can the FX market benefit from DLT?

CC: I would say it’s a significant

area of focus for us, but perhaps not the principle area. Other areas such as syndicated loans and trade finance still use systems that were put in place up to 70 years ago and therefore suffer from much more serious problems that need to be addressed. FX is certainly not in that space, but in every asset class there is a massive difference between how quickly a trade is executed versus how quickly it can actually be cleared and settled. Any drive towards greater efficiencies should focus on the post-trade space at this stage.




their input. We have structured the consortium so that our members sit on our architectural working group, their legal and regulatory policy staff work with us in our regulatory affairs efforts, and their product specialists work with us on

designing the solutions. What that means is we have a much higher likelihood of producing a product that is genuinely fit for purpose from day one.

EF: How can regulators benefit from R3?

CC: We have partnered with the Monetary Authority of Singapore, the Hong Kong Monetary Authority, the Bank of Canada and the UK Financial Conduct Authority, among others. They get access to all of our research, and they are invited to participate in any of the projects that they want. We actually put them on a node on the system itself, and their technologists are invited to work with our technologists and the bank technologists, which allows them to participate in a whole set of experiments and pilots that will turn into real world applications. It also allows them to have input into how the ecosystem evolves. We made several design decisions on Corda based on feedback from regulators on issues like settlement finality and data privacy.

One of the simplest Corda transactions: an issuance transaction.

Corda operates in larger networks that they call interoperability zones. Such networks are able to transact between any nodes in a point-to-point manner. The root of trust in an interoperability zone is the certificate authority’s root. Corda uses this technical

reality to create a global interoperability zone. Only Corda achieves this while retaining all the privacy characteristics businesses demand.


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Rosario M. Ingargiola, CEO,

OTC Exchange Network

104-107 OTC Blockchain and Cryptocurrencies.indd 1 15/12/2017 10:05



In a recent edition of CIOReview, the publishers presented a list of the “20 Most Promising Blockchain Technology Solution Providers – 2017.” Included in the list was OTC Exchange Network. This is what the magazine had to say about them.

OTC Exchange NetworkBreaking new ground in Forex

Considered the largest financial market in the world, the forex market processes transactions worth trillions of dollars each day. Behind the multi-trillion dollar marketplace are much more than online brokerage accounts and Bloomberg screens. At the top of the pyramid are prime brokers, providers of a wide variety of custodial and financial services, including acting as intermediaries between trading entities to eliminate counterparty risks. However, clients must satisfy extremely onerous requirements set by prime brokers to establish credit lines that provide access to the best exchange rates.

ELIMINATING THE CREDIT GAPAs an industry veteran with over a decade in institutional trading system infrastructure development, Rosario M. Ingargiola founded OTC Exchange Network (OTCXN) to eliminate the credit gap that exists due to the lack of prime broker provided access. OTCXN accomplishes this by leveraging its own proprietary blockchain technology stack to operate a peer-to-

peer (P2P) electronic trading network. The network democratizes access to wholesale liquidity, making it possible for any trading entity to face any other trading entity directly, without counterparty risk. “We are revolutionizing the FX space so that trading entities do not require conventional prime brokerage credit lines to access the wholesale market—our trading network gives them an entire trade-to-settlement solution,” states Ingargiola.

BLOCKCHAIN TECHNOLOGYOTCXN’s core competencies lie in building institutional grade blockchain technology as well as exchange technology. “We are using these two core competencies to essentially change the way digital assets are traded starting with the FX markets and cryptocurrency markets.”

“We have developed the first provable, institutional-grade, end-to-end digital asset trading network”



OTC Exchange Network

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The company is developing a total solution that includes a suite of real-time services, such as collateral management,

liquidation risk management, counterparty risk and liquidity management, instantaneous clearing and settlement, and

post-trade messaging. The solution caters to various market participants like the custodians who hold client assets and the

What we do

OTCXN FX Solutions – FX: Unique Offerings




trading entities. OTCXN provides trading entities with APIs as well as real-time web applications, with full trading capabilities that include blotters and tools for managing their collateral. All trading uses the industry standard FIX protocol without the need to adopt or integrate any new protocols or technologies. “We basically change the way trading entities face each other fi nancially; they can then trade FX bilaterally or multilaterally over existing ECNs and matching engines,” says Ingargiola.

Additionally, the company provides a software gateway to banks that facilitate tokenization and reservation of collateral for trading members, such as cash in the client’s bank account, without OTCXN holding or controlling the collateral. “Our

trade-to-settlement solution is a completely new hybrid market model powered by our turn-key blockchain technology that allows trading entities to transact with each other easily in a decentralized manner with complete transparency,” says Drew Rasmussen, CTO of OTCXN.

CRYPTOCURRENCY APPLICATIONSUnlike other blockchain platforms that function within the boundaries of a single organization, OTCXN’s multi-dimensional blockchain architecture, which includes an inter-blockchain communication protocol to create a global virtual ledger, natively allows multiple organizations to work with each other seamlessly while guaranteeing

the complete benefi ts of blockchain. Interestingly, the company’s technology can not only solve the biggest problem in the FX space by eliminating the need for prime broker credit lines to transact on the best prices, but it also supports cross-exchange clearing and settlement in the cryptocurrency space. Ingargiola believes that currently, the space lacks a way to secure the assets with a single trusted bank custodian while trading on liquidity found on any exchange; OTCXN can leverage its ground-breaking blockchain technology to fulfi ll that need. “This is the future of cryptocurrency trading, especially for institutions who need security, transparency and provable transaction history for their auditors and fund administrators.”

OTCXN Crypto Currency Solution – Crypto Currencies: Unique Offerings


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108-119 Blockchain and Cryptocurrencies.indd 1 15/12/2017 10:06


BLOCKCHAIN & CRYPTOCURRENCIES

William Essex explores whether or not blockchain-based tokenised liquidity platforms will justify the “hype” and disrupt the traditional retail FX-trading model.

Getting to grips with ICOs

We need to talk about ICOs and we need to talk about retail FX. Barriers to entry are not a significant issue at the retail end of the business, and early adopters of new-tech retail trading mechanisms don’t have to start by discussing legacy systems and processes. These days, frequently enough for it to

matter, what happens in retail sooner or later comes around to the rest of us.

ICOs – initial coin offerings – are where new-ish technology - blockchain, of course - meets the traditional business of exchanging a representation of value in one currency for its




“tremendous fees and inefficiencies”.

First point is that a “democratised” market is a market with a lot of people in it who weren’t there before. If this and other initiatives work as they’re intended to work, the FX market will open up to a whole range of new counterparties, many of whom will know what they’re doing and almost all of whom will have a sophisticated understanding of their “new generation” (my term) trading tools. Jim Preissler, CEO, trade.io, says: “The time has come where people take back control of capital markets and reject the status quo. This is not just about

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equivalent in another. ICOs are not significant purely because they use the blockchain, but we’ll make that our starting point today. Blockchain enables flexibility in the design of the business model, and it’s fair to say that it’s also liberating for the writers of marketing literature. So will blockchain-based tokenised [see the box ICO/ITO?] liquidity platforms will justify the “hype” and disrupt the traditional retail FX-trading model? This is the judgement call that we’re about to make.

SUDDENLY WE’RE OUTSIDERSOne “plan to disrupt the existing financial status quo” via blockchain (quoting the marketing literature) that’s coming to fruition as we speak is the “advanced financial exchange based on blockchain

technology” (ditto) trade.io’s November/December 2017 ICO. This is the first stage of an initiative to “democratise the markets” in a range of asset classes including FX and in the process to eliminate

“The time has come where people take back control of capital markets and reject the status quo.”

Jim Preissler

trade.io, aims to use Blockchain technology to disrupt the market-making broker model.




distributed technology- it’s about distributed wealth through our peer-to-peer shared liquidity pool.” That’s a crucial point. It’s not the technology, nor is it just what you do with it. Equally significant is who’s doing it.

So trade.io’s success would be to drive down costs, streamline the trading process, and bring in a lot of new players who would

Lykke deserves a box of its own because it ran an ICO before such offerings were fashionable, and almost made it an IPO. Lykke is also a platform for those of us who might consider developing an ICO. We’ll get to that in a moment. In a recent interview, Sergey Ivliev, co-founder and head of products and operations, Lykke, said: “We staged an ICO long before the hype. We offered tokens for shares and created a blockchain-based register of rights, treating our coinholders as shareholders. This means they have the right to receive dividends, to vote at shareholder meetings, and to approve annual accounts. We had a sort of ICO/IPO hybrid. Our experience was a unique one.”

You could follow Lykke’s example, or come up with an idea of your own for an ICO. Lykke did what it wanted to do, not what it was obligated to do. As has been stressed elsewhere in this feature, your ICO wouldn’t have to have anything in common with an IPO: your ICO, your project. An ICO has more in common with crowdsourcing – from which ICOs evolved – than with any traditional finance-industry approach to capital-raising.

As You Lykke It

Lykke Exchange high-level architecture

To start an ICO on Lykke’s ICO Platform, you fill in a form on the company’s website. “With an ICO, or Initial Coin Offering, boundaries of traditional finance are removed,” says the form’s introductory paragraph (yes, there is a due-diligence stage). Then you fill in a series of boxes. As if to emphasise the simplicity of ICO financing, each box – including Describe the project’s goals and objectives. How do you intend to utilise the blockchain? – has a brief footnote underneath: “max – 250 characters with blanks”. We liked that detail.

constitute, let’s say, a distributed “democratic” network of trading counterparties. For the rest of us, and here’s a significant issue, the way into that kind of market might not be to come in on the basis of experience, track record, et cetera. One of the wild cards in the ICO space is that peer-to-peer (distributed) networks tend not to be looking to trade with outsiders.

Not to overstate the point, but there are some powerful arguments for (so to speak) getting with the people on this latest disruption. Not to push a specific ICO either, you understand, but to get familiar with the process and the disruption all such initiatives might bring, and perhaps even to find a way to, excuse me, join the party. Here goes.




ICOs are a form of crowdfunding

SEEDING THE POOLAn ICO in the FX-trading space is typically an exercise in selling participation. It will be blockchain-based, and [again, see the box ICO/ITO?] it won’t provide you with an ownership

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These days, Initial Coin Offerings (ICOs) typically give you the opportunity to buy “tokens”. Yes, maybe there is a case for calling them ITOs, and the acronym is used, but these are strictly “crypto-tokens”, which means that in real life, they’re actually crypto-currency units – thus, “coins”. They exist on a blockchain. No, a token is not a physical “coin”. Nor is any other crypto-currency unit commonly described as a “coin”.

ICO/ITO?Glad we’ve got that out of the way. An ICO is an opportunity to buy a token that will (you hope) do something. It might increase in value, or it might confer benefits defined by the entity making the ICO. You do not buy ownership via an ICO. This is not an equity sale, and for that reason we will carefully avoid the word “dividend” (except elsewhere in this feature where a context or a quotation makes that word unavoidable). That said,

a token might carry a limited participation right in whatever the offering entity proposes to do with the ICO’s proceeds.

ICOs are a form of crowdfunding, and an issue that’s often cited is the lack of a regulatory framework underpinning the emerging ICO market. To put it very simply, crowdfunding evolved because people had ideas and other people wanted to support those ideas. It was a small-scale, not-big-enough-for-the-banks activity that you could almost (but not quite) compare to micro-finance. You crowdfunded an idea because you liked it.

Implicit in this description is what we might as well call the “crowdfunding mindset”. It’s different from, let’s say, the “shareholder mindset”, which prompts you to invest because you want some of the money that’s likely to be made. Tech-driven change is not only significant because it introduces efficiencies; it can also bring participants to a market who don’t think the way you expect them to think.

stake in a new trading model. To take the trade.io ICO as our first example, this promises “not only trading of multiple asset classes [on the trade.io exchange], but a more efficient listing of assets in the crypto economy under

the indelible and trusted history that the blockchain provides.” No surprises there. But this is a peer-to-peer trading platform “where participants can share in the profits of the exchange”. You buy your “TradeTokens”,




and then “participate in the forthcoming liquidity pool and potentially receive pro-rata daily disbursements of up to 50% of the pool’s profits based on performance”. Preissler says: “We intend to seed the liquidity pool with approximately $50 million cash, as well as 50 million TradeTokens. All participants will share 50/50 from our seed contribution as well.”

To complete the details, trade.io’s ICO comprises an offer of up to 275 million Trade Tokens. Over 45 million have already been sold at PRE-ICO and the remainder will be available during the ICO which started on 7 December, until 4 January. Fiat-currency payment acceptable, and for

approximate reference only, you could get around USD460 for your 1ETH on the closing day of the pre-ICO. A late-November check of the trade.io website suggested that buyers had been buying. Early adopters of the trade.io platform and technology include two regulated brokers, FX Primus Europe (CY) Ltd and Primus Capital Markets UK Ltd. Preissler says: “Ultimately, trade.io will be a trading platform for not only crypto assets but also Forex and CFD’s over precious metals, oils, commodities, index’s and global equities and any number of potential assets.”

Now we move on to SPECTRE, the Speculative Tokenized Trading Exchange, which was

also running a lively November/December 2017 ICO at the time of writing. SPECTRE, you won’t be surprised to hear, “removes the broker from the equation and returns the power back to retail traders across the globe”. The ICO offering comprised “utility tokens”, which carried a number of benefits including eligibility for a buy-back programme (thus removal of supply and potential price appreciation), and “dividend tokens”, which pay a volume-based monthly and annual return to investors against a relative downside of potentially lower liquidity. Karan Khemani, CEO of SPECTRE, says: “There is a pressure point in the system that doesn’t go away, and

The SPECTRE modelNote: The above is a snapshot of the SPECTRE business model. 2% dividend payouts to token holders are in reference to

SPI CIRI’s dividend-token and do not accrue to SPI CIRI’s utility-token which has different dynamics.



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that is the broker.” SPECTRE is designed to eliminate any potential conflict of interest between broker and trader.

In a discussion of blockchain-specific features of the platform, Khemani continues: “SPECTRE allows you to trade peer to peer or against a giant decentralised and autonomous liquidity pool. This replaces the broker entirely. There is no human intervention or possibility of fraud.” All transactions on SPECTRE are governed by smart contracts, which has the effect of removing the broker from the equation, as Khemani says, thus “ensuring a new level of trust and transparency in financial trading”. Khemani also refers to SPECTRE’s “financial academy”, accessible via the utility token, whereby traders can work towards raising their win rate towards the 60% minimum necessary for sustained profitability. SPECTRE offers a range of “trader-protection algorithms”; these enable traders to track their stats including strengths and weaknesses through time. Using these algorithms, SPECTRE “alerts traders when they are about to make a silly mistake”.

So far, so depressing for FX brokers. It’s as if the future is being marketed largely on its capacity to remove them from their livelihoods. But let’s not despair just yet. The traditional brokerage model may be going through disruption right now, but as the old saying doesn’t

It’s still possible, of course, that blockchain-based tokenized liquidity platforms won’t disrupt the tradtionional retail FX-trading model after all. We spoke to James Trescothick, Senior Global Strategist, easyMarkets, who told us: “With the rapid growth of blockchain-based tokenized liquidity platforms some analysts are saying that the traditional retail FX trading model is over. I do not believe so, simply because Bitcoin and cryptocurrencies were not designed to be investment vehicles, they were created to pay for things.”

Trescothick continued: “The average investor has forgotten this purpose, so when they go to withdraw potential profit and then convert it back to hard cash

Oh no they won’t!they are likely to find that they may have problems with their banks accepting the payment. As well as that, though the cryptocurrency market is not currently regulated, the FX retail industry is, and combining this new technology with its existing practices may prove too difficult to overcome.”

James Trescothick

“With the rapid growth of blockchain-based tokenized liquidity platforms some analysts are saying that the traditional retail FX trading model is over. I do not believe so...”


quite go, if we’re not sure we can beat them, we could always think about joining them. This is, after all a lively party.

GET YOUR DAxT TOGETHERIf all you need for happiness is a “multi-asset trading platform built for next-generation assets

and securities” that enables its clients to run their own ICOs, you might want to look at BlockEx. Or Lykke, which is discussed in the box As You Lykke It. Focusing here on BlockEx, the company is (was), you might not be astonished to know, running a November/December 2017




ICO of its own (ending 31st December). BlockEx’s mission is to “trim the fat from the financial-services industry”, and as part of this, the company has launched the Digital Assets Exchange Platform (DAxP), which is (we’re back with the marketing literature again) a “global marketplace for all asset classes and instruments using distributed ledger technology”. You buy into this by what is fast becoming the usual way – by buying one or more Digital Asset Exchange Tokens (DAxTs, at EUR1 each), and what these do for you is, they “disrupt the ICO market by guaranteeing fair and transparent access to ICO distribution”.

The phrase “get your own back” will not appear in this article. We’re above such thoughts. But one feature of the DAxP – the platform – is that you can use it to host your own ICO; the DAxP can be white-labelled. So if you’re an FX broker with an idea for a not-a-brokerage-at-all, transparent, not-intermediated-even-slightly blockchain-based facility for retail (and in this case, institutional; BlockEx has scale) traders in FX, you might want to think about – completing this sentence for yourself. Just saying. The DAxP “manages the entire lifecycle of blockchain-based assets, including origination, issuance, exchange, settlement and redemption”. You can create your own digital assets, including ICO tokens. It is, inevitably, “set to disrupt antiquated systems within the

traditional financial world, while bringing exciting new financial products into its sphere”. Possibly even your exciting new products. Oh, and it’s regulated.

Not altogether surprisingly, Adam Leonard, CEO, BlockEx, has described blockchain as “one of the most transformational technologies of the 20th century, powering the fourth Industrial Revolution”. In a discussion of BlockEx’s launch and development, Leonard says: “Back in 2013 most exchanges were built by Bitcoin enthusiasts for Bitcoin enthusiasts. The thought was if we built an exchange that operated in the same way as existing brokerages, day traders would start to trade Bitcoin.” Time passes and markets evolve and so do attitudes to disruption. These days, the value of blockchain is not so much that it displaces

traditional business models. Instead, the trend might be towards a form of “inclusive disruption”, in the sense that the technology we’re beginning to use enables all of us. Leonard now talks about BlockEx “helping to draw ICOs and tokens into the traditional financial world,” but perhaps the opposite is also true: the financial world is being drawn towards ICOs and tokens.

Or if that seems too literal, perhaps the significant potential change, looking beyond the technology itself, is in the mindset. Every sponsor of an ICO – and every writer of marketing literature in this space - finds a form of words that amounts to democratisation, or widening the market, or opening up to more customers. And what all of them are saying, in the final analysis, is that what the future holds – is more traders.

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In this our first article exploring the concepts behind Blockchain and Distributed Ledger technologies, Simon Taylor, Co-Founder and Blockchain Lead at 11:FS, focuses on Smart Contracts.

A-Z of Blockchain

WHAT IS A SMART CONTRACT? If a block chain is the database, then the smart contract is the application layer that makes much of the promise of block chain technology a reality. Most conventional contracts have no direct relationship with the computer code that executes them. In many cases the paper contract is archived, and the software will execute an approximation of the contract’s terms written in computer code (see Fig. 1).

DATA PROTECTIONThis is quite effective when signing up to use a service, but highly challenging when delivering multiple complex services to one user. This has resulted in ever more complex data protection and data privacy legislation to manage the confidentiality and privacy of the individual in an assured way. In addition, activities like data sharing or agreeing contracts have remained in paper form, rather than being automated in the wider economy. Combining

the key attributes of a shared ledger (reconciliation through cryptography, replicated to many institutions, granular access control, and granular transparency and privacy) with smart contracts may create opportunities to address some of these challenges, by allowing data to either be replicated or shared under specific conditions.

If two users sign a smart contract, it will then contain logic that operates on the data in all parts of the shared

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ledger (see Fig. 2). Note there are other challenges like management of legacy databases and processes, but the “permissioning” across multiple systems is where Smart Contracts come into their own. In an alternative scenario (Fig. 3), User 1 opts in to a smart

contract on a shared ledger to share their address with an institution that possesses a blue key (there may be many other institutions, with many different keys). But User 2 has opted out of sharing their address, so the institution only receives a copy of the latest address from User 1.

USESSmart contracts are being considered for a wide variety of uses, particularly for regulatory compliance, product traceability and service management, and also to defeat counterfeit products and fraud

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View from the Top: Stater Global Markets

Stater is now firmly established as a market leading Prime of Prime. How do you stand out in an increasingly competitive market?

Over the last year we have focused on building a highly credible PoP brokerage with a strong institutional infrastructure. It was really important to me that we had solid foundations in place from which to grow the business and this has meant that we’ve taken the time to assess and select the very best partners or products for every aspect of our business.

We have developed exceptionally strong liquidity and Prime Broker relationships, built partnerships with the most reputable technology providers in the industry and extended our product range beyond FX, precious metals and CFDs to include Exchange Traded Futures. We’ve also developed an MT4 White Label offering, with low latency hosting.

Overview of STATER GLOBAL MARKETS

Matched principal Prime of Prime broker/ STP modelRegulated by FCAProducts: Spot FX, CFDs, Precious Metals, Exchange Traded FuturesPlatforms: Currenex, Integral, FlexTrade, PrimeXM White label: MT4 Financial backing: Stater Holdings (New Zealand)Contact: [email protected]

Website: www.staterglobalmarkets.com

I believe that our small, highly experienced team helps us to stand out in the industry. We can be very nimble and are quick to respond to client requests. We can help our clients to achieve their objectives in an effective and efficient manner – for example, swift on-boarding and customised liquidity and technology. At Stater, client service is a high priority – we know all of our clients very well and we discuss opportunities for them with the whole team to ensure they get maximum benefit from partnering with us.

We have been able to create a strong identity for Stater and I certainly believe we’ve benefited from ‘the last mover advantage’ – we didn’t have any legacy systems which has meant that we’ve been able to use the latest and best technology for our clients. We have started to differentiate our product offering – not many PoPs in our space offer Exchange Traded Futures and this has helped us with client acquisition.

e-Forex talks with Ramy Soliman, CEO, Stater Global Markets

We are delivering on our targets in terms of volume and on-boarding, which shows that there is a genuine appetite in the industry for the service and value proposition we are offering.

What are your plans for 2018?

We are starting off by spending some time in Asia and assessing opportunities to build our client base in the region – not just in

Ramy Soliman

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China but also in places such as Indonesia, Malaysia and Cambodia where there are real growth opportunities.

In January, Tim Connell from Stater Holdings will be visiting the region with Stater’s Operations Manager, Wei Xu. Tim’s presence reflects our investor’s commitment to Stater Global Markets and their drive to help us to grow the business.

We also plan to extend our product range, looking at

further ways to differentiate ourselves in the market. 2017 was very much about creating solid foundations for Stater and we are now all set for growth in 2018.

How do you see the PoP market evolving over the next year?

I think there will be a stratification of the PoP market. Prime of Prime means different things to different people. I’ve always claimed that to be a

Operations Manager, Wei Xu discusses Stater’s offering for clients in Asia

The MFX Compass price formation methodology

genuine Prime of Prime you need to have a Prime Broker and offer direct access to top tier liquidity and venues which the clients would not be able to access themselves – however, not everyone who describes themselves as a Prime of Prime has a Prime Broker relationship. There are only a handful of Prime of Prime brokers in what I would describe as Tier 1 of the PoP market – and for PoPs like Stater who are at this level, I believe there will be significant opportunities to grow.

What role are you playing in growing Stater’s business in Asia?

I am responsible for business development and marketing in the APAC region and am currently focusing on China, Hong Kong and Singapore. As I am fluent in Mandarin and very familiar with the region and business culture, it makes communication with our clients very easy. I will be spending time in the region in January meeting clients and prospects, explaining how Stater can help them to grow their organisations. We are hoping to partner with some high calibre, ambitious brokers, banks and hedge funds so that we can grow our businesses in parallel.

Are the key priorities for brokers and banks different in Asia to that in other territories?

We tick all the boxes in terms of priorities for brokers in the region. First and foremost, they want to make sure they work with trusted counterparties. The fact that Stater is regulated by the FCA gives us significant credibility. In terms of products, brokers and banks are particularly interested in FX, precious metals and CFDs – and we can offer quality liquidity in all these areas because of our relationships with top tier banks and boutique non-banks. Just like in more developed markets, Cryptocurrencies are the major buzzword in the region at the moment and, as a

result of developments with Exchanges such as CBOE and CME launching Bitcoin Futures trading, we plan to leverage our Exchange Traded Futures offering to help with their cryptocurrency requirements.

Wei Xu

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Research conducted annually by Sydney based Peter Lee Associates among the 200 largest FX users in Australia suggests the buy-side is some way behind their peers in North America and Europe in using e-platforms but they’re catching up.

“We’ve found that the percentage of corporates using electronic platforms to transact

foreign exchange has steadily grown over the last 7 years – from 39% in 2010 to 64% in 2017,” explains the firm’s Managing Director, Cameron Peter. “The percentage of total reported volume transacted through electronic platforms has significantly increased over the last 7 years – from 8% in 2010 to 38% in 2017. However, growth in volume has plateaued in recent years - 36%

over 2015 and 2016 and 38% this year.”ANZ, CBA, Westpac and NAB are the most widely used platforms, the research finds. However the proprietary major bank platforms are only used for small trades. Only 9% of the total reported volume transacted through platforms is transacted through these four platforms. Of the third party platforms, Bloomberg was the most widely used with 19 per

Electronic FX trading in Australasia is adapting and changing fast. The drivers for this are both local and global and insistent demands from both institutional and corporate buy-side clients are principal factors reports Richard Willsher.

AustralasiaAn e-FX market in transition

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REGIONAL e-FX PERSPECTIVE

cent of transactions in 2017. This was more than double its share in 2015. However, the share transacted through each platform was as follows: Bloomberg (FXGO): 17%, 360T: 34%, FXall: 30%.

Thomson Reuters’ head of FX market development - Asia Pacific Michael Go confirms, “Australasia is seeing growth in the use of electronic channels on the buy-side in particular as they seek to ensure compliance with the FX Global Code of Conduct, best execution and also efficiencies from investors. The buy-side are increasingly

seeking multi-bank providers these days with a large increase in appetite for straight through processing (STP) as well as post trade services. As we’ve seen in prior years there has been further growth in the percentage of non-bank providers to the buy-side participants.”

At ANZ, one of the four leading regional banks, Luke Marriott, global head of wholesale FX, is very conscious of the pressure from the buy-side and the need to respond. “There is no doubt electronic channels will continue to grow in use in the future. There are four

key reasons why this trend will continue: cost efficiency – both to the sell- and buy-side, price and product transparency, execution efficiency and regulation. Clients across all segments through the evolution of technology expect a greater degree of service from the sell-side. No longer can the sell-side simply rely on relationships to generate business. Clients expect pre- and post-trade services, from pre-trade liquidity management, portfolio overlay, post-trade analytics on best execution, STP to their settlement and accounting systems.



Australasia: An e-FX market in transition

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Key findings from Peter Lee Associates 2017 survey:Corporates• Increase in Corporate volumes transacted through platforms is up from 8% in 2010 to 38% in 2017.• However the percentage has ‘plateaued’ over recent years, with the percentage gains more incremental.• The ‘intention to use platforms’ data suggests that growth in the usage of electronic platforms will continue, but

at a steady rate.• It is our opinion that even a volume of 50% transacted through platforms is quite a few years away.• However, upcoming regulatory changes may hasten the migration across to platforms.• Price transparency, straight through processing and speed of execution are the main advantages of electronic

platforms• Interestingly, while price transparency is seen as a key advantage, only 45% of platform users believe that FX

pricing is more competitive through platforms.

Electronic Trading – Australia – Corporates – Foreign Exchange Users (236) (138) (184) (176)The proportion of respondents using platforms, the volume (on average) they are transacting through platforms – and the total reported volume

transacted through platforms continues to increase (albeit trends have plateaued).

Advantages of Electronic Trading Platforms – Australia – Corporates – Electronic Trading Users (138) (114) (113)Straight through processing, pricing transparency and speed of execution are the three main perceived advantages of electronic platforms.

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Cameron Peter

“We’ve found that the percentage of corporates using electronic platforms to transact foreign exchange has steadily grown over the last 7 years.”



New product innovation – algorithmic execution and direct market access (DMA) are becoming standard offerings.”

There is no doubt that the sell-side is having to pull its socks up. At the same time the global majors – Deutsche Bank, HSBC, UBS, Citi and JP Morgan – are well ensconced with the leading corporate and institutional customers and ratcheting up the global technology competition.

REGULATION – ENFORCEABLE UNDERTAKINGS AND THE GLOBAL CODEThere is also significant regulatory pressure on the Australasian banks. This is coming from both local and global measures. The four major Australian banks – ANZ, CBA, NAB and Westpac -

have been obliged to issue enforceable undertakings as a result of investigations into their FX trading conducted by ASIC, the Australian Securities and Investments Commission. ASIC’s Scott Tilden, a senior specialist within the Market & Participant Supervision Team, says, that the remedial process is going as hoped. He also comes out strongly in favour of electronic trading as an important aid to a better-regulated market.

“The conversations that we have with the institutions that we monitor here in the Australian market, is that the shift is continuing towards electronic or e-commerce style platforms in FX. There are benefits around the click and trade technologies, algorithmic trading, automated execution, automatic order routing, and the follow-on benefits of STP and payments, audit logs and being able to achieve or monitor or evaluate best execution when you’re looking at an electronic executed audit trail. There is a

push for more trade to happen on electronic platforms. More volume and more customers on the platform base.”

At the same time Tilden addresses the voice-trading question. “I think firms have to work harder to monitor behaviour of voice broking, that’s a given. But there will always be a place for voice in all markets and FX is one of those markets. The consolidated audit trail, not only trading but communication, original order instructions, client instructions, confirmation, are definitely more challenging within the voice world and being able to evaluate best execution is easier on e-trading platforms but sometimes speed is not the main driver. Sometimes it’s about market impact for

Luke Marriott

“There is no doubt electronic channels will continue to grow in use in the future. There are four key reasons why this trend will continue: cost efficiency – both to the sell and buy side, price and product transparency, execution efficiency and regulation.”




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example or the outcome of multiple transactions. This will ensure that voice has a role to play.”

Tilden confirms that ASIC welcomes The Global FX Code of Conduct, which strengthens its arm in carrying out its supervision. The Code’s author, also Australian, is Guy Debelle, deputy governor of the Reserve Bank of Australia, the country’s central bank. He is also chair of the Australian Foreign Exchange Committee. Dr. Debelle is confident that the Australian banks will quickly align themselves with the Code. Particular so, as their alternative, as for banks all over the world, is regulation; and banks already have plenty of that.

“We’ve been at pains to say this. It is up to the market to adopt [The Code] and if it doesn’t then you’ll end up in a state of affairs that is a hell of a lot worse than what we’ve got currently,” he says.

He goes on to note that electronic platforms are now

in widespread use in the Australian market and what the local banks competitive position looks like. “Our platforms are the same as anywhere else in the market. On the buy-side, we have a decent sized asset management industry here and we have been able to get a fair amount of engagement on that side as well.The regional banks worked out some years ago that there is no point in competing on technology with the global players. They need to provide customer offering here, to their local customer base, in a way that is going to be attractive. We trade ourselves on EBS and Bloomberg, so they are transparent in that we actually use them. It is true that particular platforms have a higher share of particular crosses. Beyond that, it’s a global market infrastructure, which is across the whole of the global FX market.”

So between the Reserve Bank and ASIC, there is clear support for continued moves towards electronic trading. This brings the local market in step with much of the global FX industry, from both technical and, in practice, regulatory aspects.

CAPACITY TO INNOVATERegulation comes at a price, ANZ’s Luke Marriott explains. “The largest challenge in the changing regulation environment is the sell-side reducing its capacity to innovate for clients. The sell-side

Dr. Guy Debelle

“We’ve been at pains to say this, it is up to the market to adopt [The Global Code] and if it doesn’t then you’ll end up in a state of affairs that is a hell of a lot worse than what we’ve got currently.”

Scott Tilden

“I think firms have to work harder to monitor behaviour of voice broking, that’s a given. But there will always be a place for voice in all markets and FX is one of those markets.”

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has limited investment and development capabilities and over recent years the majority of the investment has been channelled to ensure regulatory compliance. This being said, banks have learned to become regulatory innovative and scale their own regulatory obligations to extend their capabilities to

assist clients solve their own regulatory obligations. MiFID II regulatory reporting and best execution are driving this phenomenon.”

Nonetheless, ANZ is not resting on its laurels and is bringing out new offerings to clients. “We’ve released

a new risk based engine, Prophet, to improve client flow internalisation and deepen our pools of liquidity in our core competency: AUD, NZD and deliverable Asian products. The new engine compliments ANZ’s FX application programming interfaces (API) based distribution strategy that

Electronic Trading – Australia – Financials – Foreign Exchange Users (71) (49) (67) (64)

Advantages of Electronic Trading Platforms – Australia – Financials – Electronic Trading Users (49) (52) (50)

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seamlessly connects to where our clients choose to deal. We have added both pre- and post- trade services to assist client optimise their hedging returns and performance, as well as manage their internal execution policies. We are currently extending our e-capabilities to include DMA via algorithmic execution for spot related products and expanding our e-options capabilities leveraging our investment in the Sky derivative risk engine.”

Deutsche Bank’s response is similar. “Some regulatory guidance has focused on market participant’s ability to be able to demonstrate best execution in its practices,” says Lee Merchant Head of G10 FX Flow Asia Pacific. “While at first it was easy to assume this meant best

price at point of trade, market participants are beginning to refine that definition to include factors such as market impact, reject rates, execution guidance etc. to better demonstrate cost of execution with their liquidity providers. Understanding some these factors requires the employment of trade analytics.”

CBA is also in the throes of a large technology overhaul of its end-to-end eFX solution. This involves co-location in low latency data centres, new price aggregation services, e-commerce pricing and sales/

Michael Go

“The buy-side are increasingly seeking multi-bank providers these days with a large increase in appetite for straight through processing (STP) as well as post trade services.”

trader workflow tools. Some of these will be rolled out by Q2 2018, we understand.

Electronic platforms are now in widespread use in the Australian market




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From April, Australian Regulator ASIC imposes record keeping, reconciliation and reporting obligations on a range of financial services organisations that hold client money. These include retail FX brokers. This may encourage retail traders to increase in number and step up their trading activities.

At present the number of unique Australians who place at least one FX trade in a 12-month period is around 50,000, according to research and analytics firm Investor Trends. Their research director

Irene Guiamatsia, explains, “This figure is the number of OTC margin FX traders taking positions on currency pairs, with or without leverage. We haven’t measured forwards or swaps, uptake of NDFs is next to negligible but we estimate the number of options traders at 24,000, in the 12 months to Oct 2016”

Like many jurisdictions around the world, the retail platform space is dominated by MetaTrader 4 (MT4). Australian traders tend to focus

on AUD and NZD, with an uptick in activity around data announcements. AUD/JPY, AUD/GBP and NZD /GBP are particular popular with almost all trades being spot.

However, according to Gavin White, CEO of Invast Global, the Japanese owned, brokerage firm, the arrival of MT5 is an important development for many clients. “A big driver of this shift is the fact that at Invast we provide direct market access to single stock and futures exchange liquidity and execution into MT5. That allows us to connect our retail broker clients to over 30 global equities and futures exchanges. When combined with our existing FX, metals, index and energy OTC

Retail trading set for a boostNew Client Money Reporting Rules coming into effect next year, may boost confidence among Australian retail FX traders.

Irene Guiamatsia

“50,000 - the number of Australian OTC margin FX traders taking positions on currency pairs, with or without leverage.”

Australian traders tend to focus on AUD and NZD




liquidity, MT5 suddenly becomes a pretty unbeatable proposition for retail brokers, and their retail clients. All asset classes on one platform, with unprecedented transparency,” adds White.

Irene Guiamatsia notes that where retail traders use brokers, “The top two are UK-headquartered IG and CMC Markets. Then follows a mix of global players such as FXCM, OANDA, Saxo, Interactive Brokers and local ones such as Pepperstone, AxiTrader and GO Markets.”

Most Australian retail clients tend to use leverage but, as in other jurisdictions, in many cases, banks have withdrawn their credit support. Invast,

The multibank platforms are also innovating. Michael Go of Thomson Reuters says that his firm, “Has recently completed a major refresh and upgrade of its market leading eco system that will support future growth and regulatory change for all of our clients and looks forward to being part of the continued innovation in Australasia and Asian regions overall.”

He adds that Thomson Reuters lays claim to having, “The broadest set of capabilities in the market that provides solution to all parts of the FX workflow.” These include, “Pre-trade data and analytics to execution and pricing over disclosed and anonymous platforms, sourcing a broad number of liquidity providers. Electronic trading for pricing that allows solutions for firms of all tiers wishing to price their FX internally or externally to clients. They have the ability to white label and allow participation for firms who may not wish to assign capital to develop their own solutions. And its post-trade solutions provide STP and trade reporting to participants including central banks in developed and emerging markets.”

WHAT NEXT?Technology innovation in Australasia could be about to advance further however. Gaining an inroad to the major institutions and corporates may be a mountain that is difficult

Gavin White

“A lot of retail brokerages, as well as other investment firms, are being offboarded by the bank prime brokers and are looking for alternatives.”

which mainly services institutional brokers, has been one of the players to step into the breach and offer prime brokerage.

“It is a large and fast-growing segment, mainly due to the fact that the global investment banks are being forced to reduce their prime brokerage offerings due to the introduction of regulatory reforms such as Basel III and MIFID II,” says White. “This has meant a lot of retail brokerages, as well as other investment firms, are being offboarded by the bank prime brokers and are looking for alternatives. We’ve been serving retail brokerages, hedge funds and asset managers around the world for the past four years.”

It remains to be seen precisely how much of an impact the new client money rules will have. It seems clear however, that there is plenty of headroom for the retail trading sector to blossom with credit also now more accessible to them.



to scale for small fintech businesses. However Peter Lee Associates’ Cameron Peter sees the small and medium sized business end of the spectrum is been more receptive.

“The big corporate users have nine or ten FX providers and proprietary platforms as well as third party platforms. So they are getting a lot of attention from the established banks. There are not gaps opening up where a fintech can find a way in. Further down the size spectrum you go, there are thousands of companies that might be receptive to something new. Then there’s compliance at the big firms and institutions and they can’t move as nimbly as a smaller companies can in

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adopting those newer things.”

Meanwhile ANZ’s Luke Marriott sees technological innovation in a variety of avenues. “Artificial intelligence (AI) is playing a role in predictive analytics around market events, credit decisioning, electronic chat surveillance, digital servicing, the interpreting of social commentary in relation to the market and AI as a service. Fintechs are increasingly leveraging synthetic ways of facilitating cross border trade to circumvent traditional correspondent channels. Distributive ledger technology (DLT) uptake is starting to gain traction but more for the consensus ledger aspects than as a way to move a store of value such as Bitcoin. Its value

lies in uptake, which can be challenging across so many market jurisdictions, actors, local regulations, differing degrees of digital maturity etc.”

Marriott adds that trade and supply chain activity in intra-Asian trade is also driving FX digital innovation. He points to statistics that show that this is 3.5 times higher than Asian trade with North America and Europe.

Meanwhile, Thomson Reuters’ Michael Go tempers his response to the question of the importance of AI and DLT. “I understand that blockchain is being tested in a number of firms in Australasia, in the areas of payments and settlements


Lee Merchant

“Market participants are beginning to refine the definition of best execution.”



Algorithmic Orders/Transaction Cost Analysis – Australia – Financials – Electronic Trading Users (50)

across a number of asset classes but nothing as yet that is being touted for release from a client / trading perspective. The AI space is very interesting when it comes to the future development of automated and algorithmic trading but again it is very much wait and see.”

CONCLUSIONWhat becomes clear when speaking to market players in Australasian FX at the moment,

is how responsive it is to international pressure on one hand – the FX market being truly global. And at the same time how quickly it is adapting to buy-side demands. This is evidenced in areas such as its rapid take up of the Global Code and FX market regulation for example. But it is also taking on board new trading technologies and innovations. There is a sense that while Australasia e-FX is in a phase of great change and transition – along with many other jurisdictions – it is also demonstrating how keen it is to adapt and rank itself among the most advanced in the world.

Source: Peter Lee Associates


David - does providing state of the art FX Aggregation remain a significant technology challenge? The technical work in dealing with noticeable transport latency differences that still exist between FX trading venues and a lack of messaging standardization must be difficult.

FX Aggregation might be a challenge for smaller vendors or financial firms using an in-house system but to achieve performance and quickly adapt

to market changes you must constantly invest time and resources on an Aggregation system. With nearly 20 years’ experience, smartTrade’s provides sophisticated cross-asset Aggregation for banks, brokers, buy side firms and corporates. Having a large customer base enables us to create economies of scale to keep on investing in better infrastructure, in performance optimization and in new features that address the latest market trends.


With David Vincent, CEO of smartTrade Technologies

Lately, we have noticed that liquidity providers (LPs) have started to provide more sophisticated liquidity with different type of streams such as sweepable or full amount. Your Aggregation system needs to evolve rapidly in order to integrate new functionalities such as multi-streams handling, as in the case of LiquidityFX, our FX packaged solution. To conclude your in-house system or your provider’s flexibility is probably your biggest challenge.

FX AggregationOffering access to better liquidity and execution quality

David Vincent

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In what ways have sell-side firms in particular seen additional benefits from FX Aggregation over the past few years? For one thing, it certainly seems to have enabled many of their sales teams to become more competitive than in the past, but I am sure there are more.

Aggregation is not only about being more competitive, it’s also about helping sell-side firms to support new regulatory requirements. The value-added of Aggregation now becomes obvious when you combine it with other advanced applications such as a Smart Order Routing system (SOR) which allows access to a wide range of execution strategies for external and internal algos, to manage different order types or segment liquidity streams. Or when it gives sell-side firms the ability to further streamline their processes by leveraging a pricing and distribution engine to create liquidity streams and price tiering. This also enables them to add trader and client mark-ups, to enable auto or manual RFQ pricing and to create synthetic instruments. Ultimately, I would say the most benefit sell-side firms can achieve is when they use powerful trading analytics modules, such as smartAnalytics, to discover patterns, trends, and associations they can integrate to improve their execution and to provide their clients with a better service.

How would you describe a comprehensive FX Aggregation solution? What sort of toolsets and functionality should clients expect it to offer?

There are the pre-Aggregation toolsets such as connectivity to your LPs, which need to be easily manageable if your trading strategies change. To achieve the most accurate view of the market, you need ultra-low latency connectivity to your LPs as well as an integrated rate cleansing functionality. Your Aggregation system needs segmentation capacity into multiple liquidity pools and a personalizable trading graphical user interface. In terms of post-Aggregation, to improve your fill ratio you need to leverage a powerful SOR supporting a wide range of algos and orders types. Additional functionalities such as checks on credit, on LPs, on currencies, on traders are also important to be more transparent.

Recent Deutsche Bank research into the use of Aggregation for FX spot execution concluded that quality is better than quantity when it comes to working with liquidity providers. What are your own views about this and how should trading

firms tackle the thorny issue of how many liquidity providers to include in an aggregator and of course which ones to use?

Our clients have many LPs but it doesn’t necessarily mean that they trade with all of them. As LPs connectivity is now commoditized, they keep all those connectors for risk reasons and work only with a few preferred LPs from whom they expect an excellent service. Analytics have a big role to play when it comes to relationships with LPs. Now with big data solutions, such as smartAnalytics, clients can get access to granular trading data analysis and obtain reports on their LPs performance, rejections rate, pricing consistency, last look etc. I would add that the trend is not only observed in Spot FX, many of our clients using Aggregation on other asset classes such as Swap, Forward, and Cryptocurrencies.

There are now a number of well established FX Aggregation solutions available on the market. What factors are important when looking to choose a suitable technology provider and how much weight should be attached to working with firms that embrace best practice guidelines?


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“When it comes to selecting one Aggregation provider, we see that clients assess three things: experience, solidity, and services.”



When it comes to selecting one Aggregation provider, we see that clients assess three things: experience, solidity, and services. The experience and the reputation are key selection factors as clients want to make sure the selected provider will be able to deliver the solution on time. The solidity is very important too, because clients want to be assured that the selected company is strong enough to partner with them in the long term. And of course, they assess the solution and the services and how they match with their needs and their future requirements. There are also other factors such as the pricing model. We also noticed that best practices guidance has been very helpful to our clients when it came to implementing

MiFID II for example and we are committed to helping them again with the Global Code of Conduct.

Aggregator technology is designed to improve execution by consolidating liquidity – in the a form of bid and ask prices and amounts – from multiple sources into a single unified order book. As each client is different how do you go about designing an optimal system to meet their own specific needs? Execution objectives and trading styles are naturally not the same for everyone.

Our clients’ execution objectives and trading style vary a lot as we work with banks, brokers, buy-side firms, and corporates.

But we provide them with the same set of tools which have some customizable features according to their needs. The LiquidityFX aggregator is cross-asset and supports a combination of currencies, order types and price tiering. The user interface can be tailored to individual trader’s needs thanks to a handful of widgets that can display information ranging from market widgets that can display analytics, videos, news or social media feeds. With our highly scalable, low-latency pricing and distribution engine, our clients can create and assign custom liquidity and are able to control and distribute streaming prices to their clients. They can assign custom liquidity profiles to individual clients and distribute via API or White Labelled HTML5.

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Why do think there is growing interest in more packaged solutions incorporating liquidity Aggregation and smart order routing systems and what benefits does this have?

Why shouldn’t it be packaged? Now Aggregation and SOR have become a commodity. The key benefits of a packaged solution are the time to market, stability and of course cost cutting. We bring our clients to production in a few days with our LiquidityFX solution and host it for them. The major benefit to using our packaged solutions is around risk. Sell-Side firms can control their risk by managing their positions and capturing profitable trades. With our risk management system, clients can configure hedging rules or use our out-of-the-box auto-hedging of client trades to manage positions and skew, or check their net open position. They can use our fully integrated margin credit extension to allow their end clients to trade larger amounts, leveraging their cash margin, monitoring and managing risk coverage in real time.

Many FX market participants are now taking a more quantitative, data-driven approach to trading that involves in-depth discussions about the spread, market impact, reject rates and consistency of pricing. In what ways have you addressed


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these developments in the construction of smartTrade’s own liquidity management system?

We have been applying this approach for many years. LiquidityFX allows our clients to set-up automatic or manual adjustments on their LPs or currency pairs. This enable clients to receive liquidity that reflects the true cost of trading in the market so consequently their SOR will be more efficient. They can do so directly from our Aggregation system and using our ReST API.

What about upgrading an existing FX Aggregation solution. Is it best to work with an existing? setup or start again with a completely new solution and, if so, how difficult is that in terms of cost, speed, and integration with existing trading systems?

It depends on how flexible your Aggregation system is, if you can easily integrate other needed FX functionalities and if it complies with actual and upcoming regulations. Our LiquidityFX solution is very easy to integrate and can be deployed very quickly. Many of our new clients came to us wanting to replace their legacy vendor platforms because of their lack of flexibility. Onboarding clients is a very straightforward and quick process for us. The other advantage of working with a provider like us, is

that we constantly enrich our Aggregation system with new functionalities to ensure our offering stays ahead in term of performance, speed and user-friendliness.

In this edition of e-Forex, we are exploring how MiFID II and the FX Global Code will encourage the emergence of a new way of doing business between sell-side and buy-side firms. In what ways do think the new regulatory environment will also impact on the demand for FX Aggregation services and the way the technology will be engineered and deployed in the future?

More control, more sophisticated solutions and more data crunching for a fairer and a more transparent FX market are what MiFID II and the Global Code of Conduct are leading to. Today solutions such as our smartAnalytics product, with advanced trading analytics, attract sell-sides and buy-sides in need of real-time and historical dashboards and reports and to help them with TCA and regulatory compliance. The FX market will go a step further and participants will incorporate machine learning and algorithmic trading techniques into their FX execution strategy, something I believe will become ever more prevalent in the industry. Aggregation is not the game changer anymore, it’s all the other functionalities around it.


Collaboration, Cost and ComplexityWork continues on modernising Post Trade FX

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The FX market has always dealt with fragmentation and complexity but, as Frances Faulds asks, in order to modernise, does the industry need a wholly new model?

The foreign exchange market has gone from a position of strength, in pioneering trade automation, to lagging behind the other OTC asset classes, in terms of post-trade processing, today. While the credit, interest rate and equity derivatives markets have benefited from the greater use of standards and centralised solutions for more than a decade, the FX market is still grappling with challenges such as trade confirmation, options exercise management, and more recently, centralised clearing and regulatory reporting.

While there is some evidence of centralisation, standardisation and collaboration in the FX market, it is not widespread enough

yet to have made an impact and there is still much to be done at an industry level. In 2015, IHS Markit launched the first venue-neutral trade confirmation service for FX options, with Citi and JP Morgan confirming the first trades and more than 50 asset managed firms signed up to use the service, a significant step in terms of enabling counterparties in the FX market to centrally confirm trades.

Regulatory requirements around central clearing and the impact of the uncleared margin rules for OTC products, which have proved to be a catalyst for clearing, have brought the clearing houses into the FX market and the

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demonstrate that the margin, capital, risk and operational efficiencies that clearing brings to the market are proving persuasive to evermore market participants.” Furthermore, with now 30 clearing members of ForexClear, LCH says that it is now seeing a growing interest from the buy-side, and is expanding the ForexClear offering with the launch of clearing for G10 NDFs as well as physically delivered FX options.

Although the launch of CLS in 2002 was transformational for the FX market, reducing settlement risk and creating efficiencies in processing, as the FX market is arguably maturing into a low margin business tackling the fragmentation in the market and modernising the post-trade infrastructure, that to some extent was built to support voice-trading, remains the biggest challenge facing market participants today.

CLS standardised the market for FX settlement and two years ago collaborated with NEX Optimisation, which has been conducting compression in other asset classes since 2003, to launch triReduce CLS FX service, a post-trade

compression service for the industry. This has already eliminated almost $3 trillion in gross notional value from the outstanding FX forward and swap portfolios. The service has recently been enhanced to include more FX prime brokers and there are further plans to extend the service to CLS third party members and to buy-side firms.

AUTOMATING END-TO-ENDNEX Optimisation includes a portfolio of cloud-hosted services needed to process a transaction from beginning to end, ranging from pre-execution credit checking to multilateral portfolio compression. Andres Choussy, Head of Trade and Portfolio Management, at NEX Optimisation says: “What we offer covers multiple services across the entire post-trade space. We have trade matching affirmation and confirmation layers, limit calculation engines, allocations engines, then reporting engines, both internally, back to underlying clients, and externally for regulatory reporting in Europe, portfolio reconciliation services; portfolio compression services, treasury and collateral management services and last but not least we’ve started developing some other settlement and payment service offerings. So, we have a whole host of services, through the entire post trade life cycle from the moment the trade has been executed all the way down to

take up of clearing by FX firms, on a voluntary basis, ahead of any firm mandate. With the launch of clearing services for NDFs, (CME is folding FX NDFs into its existing futures product set, so standardising them with futures and LCH is dealing with FX and NDFs by folding them into its OTC product set, thus providing standardisation but across a different set of products) new operational and margining efficiencies are being made available.

In September this year, LCH’s ForexClear service processed $1.2 trillion in notional and hit a new monthly record of clearing more than 160,000 trades. Commenting on the new records, Paddy Boyle, global head of ForexClear, LCH, said: “These record volumes

Andres Choussy

“Whether you are a bank, a hedge fund or an asset manager, compared to a decade ago, it is probably costlier to be in the FX market today because of the operational, capital, settlement and the funding related costs.”



SPECIAL REPORT

the moment when that trade, or margin, has been settled.”

With these services in place, Choussy says NEX Optimisation is now spending time on further developing services that reduce costs for its clients, and the two costs that the company has been particularly focusing on are capital related costs, as well as funding related costs.

Due to the fact that a lot of the new regulations are driven by notional calculations NEX Optimisation has developed a range of tools aimed at reducing the amount of

notional that is actually in the system, whether it is through netting or whether it is through compression, to give tools to both the sell-side and the buy-side so that they can minimise the notional that is booked in the system.

Says Choussy: “This is linked to reducing any funding and settlement related costs that are driven by the amount of the notional – at the gross vs net level of settlement, the number of row items that are being settled, and how those actual settlements are being carried out. That has been our recent

focus. How do we develop tools that help banks and buy-side clients manage their capital requirements as well as their funding and settlement costs?”

In certain areas of the industry, a lot of the development work and a lot of the technology that was built, historically, was built in a much more reactive way, to address very short-term problems. “By stepping back and providing clients with an integrated solution for post trade services, NEX Optimisation can offer clients a bundled service that simplifies their operational process.”

Evolution of post-trade mutualisation – The table above highlights how FX is trailing behind other asset classes in the evolution of technology and operations mutualisation which is required to truly unlock the industry benefits around shared investment.

Source: Broadridge and GFT


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FLEXIBILITYBut at the same time, clients want flexibility and to be able to access as many different service offerings through one single connection. For example, NEX Optimisation recently partnered with high-speed payments infrastructure provider, Baton Systems, to act as a distribution vehicle for Baton’s settlement payment services. In essence, this means clients obtain an end to end service, addressing all of their needs and consolidating all of the processes as much as possible, but retaining the flexibility to utilise third parties for specific components. “This

means we are offering them a centralised solution, but with interoperability out to different services,” Choussy adds.

Baton has joined NEX Infinity as the first third party to provide its services through the platform and NEX Optimisation and Baton have been working with a multi-national bank client of NEX Optimisation to deliver Paddy Boyle

“These record volumes demonstrate that the margin, capital, risk and operational efficiencies that clearing brings to the market are proving persuasive to evermore market participants.”

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a new post-trade solution for FX spot transactions delivered through the NEX Infinity platform, expected to go live in Q1 2018. Combining NEX Optimisation’s matching and confirmation services and enriching the resulting client data with Baton’s settlement and payments services will enable faster asset movement with, and between, banks.

But while some level of standardisation is being brought to the FX market for the first time by the clearing houses, Choussy says there

is still not a lot of additional standardisation at this high infrastructural, or macro, level, and as a result the FX market is still fragmentated in terms of providers, whether it is in numbers of execution venues or technology providers, and there is still a lot of fragmentation across the different segments of participants in the market.

However, Choussy believes that in some ways the fragmentation in the FX market has been beneficial because it encourages more competition and also addresses the diversity of the

FX market - that no two hedge funds, no two asset managers, or no two banks are really identical in business operations. “Each of them has a different view of how they want to process trades and how they want to handle operations. So, there are still a lot of idiosyncrasies out there, with existing systems and existing end clients and so there is a need to have different services, for the different client segments - services concentrating of prime of prime services, services specialising in FX options, or trading services. Some of this

Segmentation in the FX market

Source: Broadridge and GFT


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fragmentation is driven by market demand and it does encourage a lot of competition, so some of it is good.”

According to Choussy, the industry can deal with a certain level of fragmentation but challenges are downstream, where the regulatory reporting requirements are, as the regulators do want consistency and standardisation. “The regulatory requirements are definitely encouraging standardisation of reporting and are also encouraging the use of integrated platforms that can consolidate, normalise and then standardise the data, back to the trade repository.”

LEVERAGING EXISTING FUNCTIONALITYNEX Regulatory Reporting can provide this service, while still allowing for the individual upstream clients to actually retain some of the flexibility and idiosyncrasies within their systems. So, while a lot of the regulatory reporting requirements force standardisation, it is done in such a way that market participants are utilising the likes of NEX Optimisation to normalise the data, and standardise it for them, without the need for them to change much of their overall processing. “We try to make it as painless as possible for the end-client.”

Automation is still a cornerstone of the post-trade arena, as is

the need to avoid duplication of effort. Says Choussy: “The end client also does not want multiple providers and vendors providing services – in our case, if the client is already sending us the trade data, via Traiana, to perform matching, to perform allocations and confirmations, they would then expect that we take that through to the trade repository to cut down the need for them to connect to multiple providers for the regulatory reporting piece.”

But although there is greater automation in the post-trade FX market, there is also greater complexity. This is inversely effecting cost, and at this point in time, Choussy believes the regulatory costs have gotten the better of that equation. “Whether you are a bank, a hedge fund or an asset manager, compared to a decade ago, it is probably costlier to be in the FX market today because of the operational, capital, settlement and the funding related costs. NEX Optimisation, will enables banks and buyside clients to address each of these issues and generate savings through the use of an integrated solution that leverages our existing functionality and the existing processes, and data that we are already collecting for our clients.”

A NEW MODELAs the FX market continues to grow and cross-border

transactions increase in size and value, so too does the expectation of customers in terms of lower costs and better services. A whitepaper, published in April this year by Broadridge and GFT, examines the idea that a wholly different model for the FX market is needed; whether a possible reshaping of the FX operations market, capitalising on mutualisation, would ease the



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burden of operational pressures and shrinking Return on Equity (ROE) in the $5 trillion a day market.

The two financial services providers have formed an industry working group to define a future state model, and the paper, entitled ‘FX Operations: the next frontier for mutualisation’, provides what could be a blueprint for

mutualisation via a ‘full-service’ managed service provider (MSP), or a common utility for operational functions.

Chris Davis, Vice President of Global Sales at Broadridge Financial Solutions, says that higher levels of automation in trade execution, combined with lower transaction values and tighter margins are forcing a complete re-think of post trade

processing technology and operations for FX. He says; “Any time a low value, low margin trade needs to be touched by a human being through manual intervention, any profit is almost immediately lost. As a result, FX players need to automate every stage in the processing lifecycle; they need to consider artificial intelligence tools to eliminate any manual intervention in the trade processing lifecycle.”

The FX market was one of the first to embrace

digitisation but the product dynamics make

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Despite the fact the FX market was one of the first to embrace digitisation, as trade execution was automated, in the complex global FX market, spanning multiple market segments across buy side, multi-national corporations, retail brokers, and individuals traders, the product dynamics make ‘standardisation’ a challenge. However, Davis says that Broadridge has successfully helped businesses move to centralised post trade processing models in other asset classes and while there are some idiosyncrasies in FX to consider, sees no reason why FX could not follow a similar path. “We expect FX to continue to digitise all stages in the trade processing lifecycle” he adds.

But Davis believes the current model for post-trade is falling short and it is getting harder for

banks to compete on services where clients are increasingly expecting cost savings, and Return on Equity (ROE) for banks’ FX business lines remains low at a time when many firms have already exhausted traditional routes of cost reduction.

Davis says: “Banks continue to experience unacceptably low ROE and cost income ratios; as such they need to look to transform the technology and operations cost bases to drive ROE. FX is not immune to this need to drive out operational cost inefficiencies, and post trade processing of FX, like other asset classes, is not a differentiator for any financial institution.”

DRIVING OUT OPERATIONAL INEFFICIENCYBy automating the trade processing lifecycle and capturing all activity associated with an FX transaction within a single open database, Davis believes that Broadridge is enabling clients to perform deeper data analytics on their FX business. “This level of transparency and data analysis enables heads of FX to better understand the profitability and cost dynamics of various

aspects of their business, and to move towards a transaction cost analysis model.”

According to Davis, the diversity of the market is both an asset and a major challenge for any FX player. FX market participants need to be able to source liquidity from multiple providers and service diverse client segments, manually and electronically, across multiple channels. “A robust, integrated and highly open FX platform is critical in the heterogeneous, complex and dynamic market. Many legacy FX systems are challenged when it comes to integration and connectivity, often relying on third-party tools to facilitate integration. Broadridge’s FX solutions have been designed with integration at the forefront of the architecture, which positions our clients to respond rapidly and securely to new venues and channels to market.”

The reliance on legacy systems that are not scalable and are prone to manual intervention, as a result of years of a lack of investment in the middle and back office is now being more severely challenged as the industry works to meet new regulatory requirements, such as clearing and reporting as well as the requirements around best practice, but has the industry come to a point where it can no longer further reduce costs whilst not introducing any additional operational risks?

Chris Davis

“FX players need to automate every stage in the processing lifecycle; they need to consider artificial intelligence tools to eliminate any manual intervention in the trade processing lifecycle.”



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The Broadridge/GFT white paper argues that the FX market is already behind equities, derivatives and fixed income in the adoption of centralised managed services, offering operational resources on top of a technology platform. The blueprint that the paper lays out proposes a way in which the FX market could actually leapfrog

the other asset classes in terms of stripping away the causes of breaks, or unmatched trades, and late payments with a single processing platform for the industry.

In the same way that the advent of CLS was a transformational pillar in the evolution of the FX market, paving the

way for increases in volume, participants and risk mitigation, the proponents of the white paper say that a centralised, mutualised operations model, covering both CLS and non-CLS transactions, could empower transformation aimed directly at the costly inefficiencies that exist in the FX operational model today.

Potential Functional Model – the next frontier for FX operations

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Meeting exponential demand Delivering FX Liquidity, Risk and Technology services across APAC markets


Joe Morgan reports on how increasing levels of disposable income and a culture of speculation is spurring exponential demand for retail FX trading services across Asia-Pacific (APAC) markets.

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“They really, really like speculative trading,” says Tom Higgins, founder and Chief Executive Officer (CEO) of Gold-i Ltd, when asked about retail investors in Asia. This demand pushes brokers to deliver more and more asset classes. So the asset classes they need to trade need to be reasonably volatile and they need to be easily traded,” he states.

Higgins points to a tectonic shift to the APAC region as the global centre for growth in retail FX trading, driven by an “insatiable” end user demand in a region where speculation on the financial markets is rampant. FX is one of a variety of asset classes that have hit high levels of retail demand in Asia, according to Higgins. Asset classes also vying for a slice of the burgeoning APAC retail market include commodities such as gold and silver, Contracts for Differences (CFD’s), indexes and – most prevalently of late – cryptocurrencies. “They all need to be provided in a single trading screen,” says Higgins. “Clients don’t want to have different trading systems for different asset classes and different margins. They want it all in one place.”

SOURCING GOOD LIQUIDITY Raj Sitlani, Managing Partner at IS Prime Ltd in London, says obtaining access to good liquidity is the key focus of retail brokers in the APAC region, rather than new technology solutions or real-time reporting tools. “Their priority is – what is the price that the prime of prime is showing,” he says. “Everything else is deemed to be bells and whistles. And that is because there is so much demand for FX liquidity out there that price is key.”

As there are a variety of options for retail brokers seeking to source liquidity in Asia it is vital for a start-up broker to undertake due diligence on the various liquidity providers that are available, according to Paul Jackson, Director of Sales at CFH Clearing in London. The trading services provider has installed a point of presence in Hong Kong, providing robust connectivity throughout the APAC region. “Essentially, there are only a small number of actual price originators in the market,” says Jackson. “But there is a lot of liquidity consumption and redistribution. It can sometimes be difficult to obtain access to the true source, in terms of affordability and capital requirements. It may also be easier and more cost efficient to obtain tier one liquidity via a prime broker or prime of prime such as CFH Clearing.”

“The question for retail brokers is always sustainability of market access,” says Kurt vom Scheidt, Global Head of Foreign Exchange, Saxo Bank. He says brokers need to work with a market access provider that can help them ensure that the liquidity they obtain access to matches their requirements and the requirements of their underlying clients. Saxo Bank has formed relationships with a variety of leading liquidity providers and offers connectivity to a wide range of primary and secondary Electronic Communication Networks (ECNs).

Scheidt says the APAC region is exhibiting signs of maturity, with an increasing awareness among retail investors of the benefits of direct access to the primary sources


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of liquidity. “We have seen two trends which seem to conflict; decreased market access via traditional FX prime brokers and increased demand for direct market access and it is this demand which prime of prime firms have looked to satisfy,” he says.

Cristian Vlasceanu, Chief Executive Officer at PrimeXM, says the main liquidity sources for FX remain London and New York – in terms of the best prices and depth of liquidity – and for the best service the trading platform and execution engines have to be co-located with the liquidity providers. “The challenge is to optimize the connections from traders in the APAC region to the trading environments

in London and New York, for lower communication times and most importantly stability of the connections,” he says. “Clever routing of traffic via dedicated lines as well as the deployment of proxy services in strategic locations is key for this.”

Another big challenge for FX brokers is to be able to handle large trade sizes coming from their clients so a key factor brokers take into consideration when evaluating their liquidity partners is their ability to offer a good depth of liquidity, as well as good spreads, according to Vlasceanu. Aggregation technology plays a big part in achieving better execution for large orders by reducing slippage, thereby increasing the chances of big orders being filled, he adds.

TECH-SAVVY RETAIL TRADERSWhile an increasingly sophisticated retail investment base in Asia has made automated trading more prevalent, demand for low-latency trading in the APAC region is lower than in Europe or the US, according to Higgins. He says this may in part be a result of more application

program interface (API) FX trading on smartphones. “Mobiles are so popular in Asia. So proportionately, I think you have more trading on APIs. Certainly there is more algo trading on MetaTrader 4 and MetaTrader 5,” he says.

Scheidt of Saxo Bank says demand for trading services on handheld devices is a growing trend. A third of Saxo Bank’s total revenues from private clients is now generated from mobile and tablet devices.

Obtaining speedy access to liquidity is vital for new FX brokers entering the APAC region. Retail investors located far away from their MetaTrader server run the risk of automated trading systems failing to execute the desired trades as a result of latency. Liquidity providers have in the past relied on a Point of Presence located in the established hubs of Chicago, London and New York, thereby causing latency problems for retail traders in APAC, particularly those using automated trading systems. Still, brokers are now obtaining connectivity to Points of Presence at established trading hubs in the region such as Hong Kong, Singapore and Tokyo while deploying virtual private server (VPS) solutions to further reduce latency, according to Higgins. “Sometimes it is a matter of using a VPS service because if the client is miles and miles away from their

Paul Jackson

“I feel brokers are starting to give a lot more consideration as to who they select for liquidity, risk management and technology. Selecting a partner with a healthy balance sheet, a credible licence and core technology is key.”


MetaTrader server then their automated trading is terribly inefficient because there is such a long latency between what the client wants to do and when it hits the server,” says Higgins. “A VPS solution solves that by having the client solution effectively right next to the server.”

It is vital for new entrants in the APAC region to undertake due diligence on possible liquidity providers, according to Higgins. He says that there have been cases of liquidity providers using smoke and mirror tactics to hide the fact that their liquidity is obtained from outside the region in New York or London, via the use of a network connection

located in APAC. “You get some benefits if they have a local Point of Presence,” says Higgins. “But if you have a local liquidity source with local execution and local banks and non-bank pricing as you do in say Tokyo then you have a real benefit because the executions don’t have to go back to London. You want to make sure that you’re not going via the Internet back to New York or London. If you can use a local liquidity provider that is executing near where you are located, that is the best solution.”

‘TOXIC TRADERS’Higgins says FX brokers entering the APAC region have, in the past, paid a price for failing to

recognise the threat of “toxic traders” that “hunt around” for new brokers. This makes it imperative for brokers entering APAC to put in place good risk management systems. “They need to make sure that they’ve got low latency,” says Higgins. “Otherwise, if they are trading something like an index then toxic traders can really take them to the cleaners.”

Avoiding so-called toxic flow is a priority for prime of prime brokers, according to Sitlani. He highlights the availability of the Expert Advisor Builder on MetaTrader 4 and copy trading tools that can enable retail traders to effectively “game the market.” The

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advent of a market moving news event could result in trading flow being diverted to a small number of key liquidity providers, resulting in a substantial deterioration in the quality of execution, according to Sitlani. “We don’t want to be on the receiving end of flow that ultimately harms the liquidity stack or the liquidity pool,” he says. “The biggest challenge for us is to help retail brokers to sift through the flow that they have and work out how to eliminate flow that is going to damage the liquidity pools we have set them up on.”

Retail brokers operating in the APAC region that don’t run a pure STP [straight through processing] book model also need to consider more advanced risk management solutions, according to Sitlani. Last year, IS Prime acquired IS Risk Analytics, a Grand

Rapids-based provider of risk management services and advisory solutions, providing retail brokers with tools for managing risk. “Retail brokers are looking for solutions to help them manage that flow better and to have a better decision

making tree on whether they book clients,” he says.

Vlasceanu of PrimeXM says brokers are increasingly interested in their ability to obtain access to their own setup, enabling them to manage, customize and monitor their systems in real time. “Having this access level is essential to the brokers’ ability to proactively protect their system and make any changes as required,” he says.

Vlasceanu says increasing demand for FX services in the region has resulted in more Denial of Service (DDoS) attacks. “Security is another major challenge for the FX brokers operating in this region,” he says. “DDoS mitigation services and the overall security of the trading environment is a must for any provider catering for brokers in this region.”

REGIONAL DEVELOPMENTSThe Japanese retail FX market is the most mature market in the APAC region, bolstered by high levels of Internet penetration. Strict rules on leverage means retail brokers entering the Japanese market should have robust risk management technology, according to Jackson. “Japan

“We don’t want to be on the receiving end of flow that ultimately harms the liquidity stack or the liquidity pool.”

Raj Sitlani

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strong presence in the APAC region need to

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is very diligent on making sure that all the boxes have been ticked,” he says. CFH Clearing has a price aggregation engine in the Equinix Tokyo TY3 data centre, enabling it to provide liquidity and low latency execution to Japanese clients. “Being able to price locally can give you an edge in terms of providing robust connectivity and high performance execution,” says Jackson.

Sitlani of IS Prime describes China as “a very unique beast”. He views the mainland retail FX market in China as being in its infancy and therefore somewhat unsophisticated and

lacking the maturity of financial centres such as Hong Kong and Singapore. “Like all newer markets, it will take time for the Chinese market to mature. However, it is evolving quickly and inevitably will become more developed,” he says.

Jackson of CFH Clearing says that the retail brokerage market is showing signs of increasing maturity. “With heightened global regulation taking place, clients are becoming much more aware of offering overly outlandish credit and margin conditions that may not be sustainable in the long run,” he says. “So

I feel brokers are starting to give a lot more consideration as to who they select for liquidity, risk management and technology. Selecting a partner with a healthy balance sheet, a credible licence and core technology is key. In such a boom market like China, retail brokers need to establish a niche and a unique selling point – whether it is their products, platforms, service or commercial offering. Their offering is generally backed-up with a significant online marketing and a sales drive.”

Higgins says the importance of obtaining official recognition

Asia has become the epicenter driving the retail boom in crypto trading

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as a trading entity in China would be foolish to ignore. “As a technology provider, if you haven’t got a Chinese company it is extremely difficult to function,” he says. ““You don’t have access to data centres or anything. We are an official government approved company so we can do things that it is hard for others to do. We can use Amazon Web Services in China, for example. Without having made that investment in China it is very difficult to operate there. For people who don’t want to have facilities in China but offer services there it is a bit of a non-starter.”

Higgins says the great fire wall of China remains a barrier to doing business in the country. He describes the Internet in

China as “way too overloaded,” though he says technology can be deployed to circumvent restrictions to Internet access in the country. “There is too much data going through so everything slows down,” he says. “They have said that they are going to block some ports to stop people connecting but you can get around that.”

Obtaining Internet access in China remains the primary issue, according to Scheidt. “The balance that needs to be struck is between local user interface access for users, and having liquidity infrastructure that is co-located or at least geographically very near to for liquidity access,” he says. “Without that balance there can be issues with slow performance in user interfaces and frustrated users, and or significant slippage on orders.”

Vlasceanu says PrimeXM customers most value its capacity to overcome connectivity issues between China and the outside world, thereby providing a reliable and consistent trading environment. “To tackle this, we have established dedicated lines between Shanghai and London, linking the clients to the trading

engines,” he says. “Additionally we are continuously working on optimizing the communication as much as possible, which is a constant ongoing process. While ensuring stability, this also helps to greatly reduce communication latency, which is very important as well.”

Aside from having a physical presence on the ground in the world’s second biggest economy, it is imperative for new entrants to be aware of cultural differences in business practices, according to Higgins. “One thing we’ve learnt from operating in China is anything you think you know, you’re wrong,” he says. “Everything is different. Every way you operate is different. Every way you employ people is different. The way contracts are signed is different. So you really have to be fully engaged in China. It has to be a full part of your business.”

THE FUTURE OF MONEYAsia has become the epicentre driving the retail boom in cryptos. “All without fail are demanding cryptocurrency trading,” says Higgins. “Everywhere. It is just the hottest talk.” This boom shows no sign of abating in the near-term as retail investors in Asia are drawn to the volatility and touted potential for high returns offered by digital currencies. “Everybody wants to do it,” says Higgins. “From banks to institutional brokers and retail


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“The challenge is to optimize the connections from traders in the APAC region to the trading environments in London and New York, for lower communication times and most importantly stability of the connections.”

Cristian Vlasceanu


Tom Higgins

“One thing we’ve learnt from operating in China is anything you think you know, you’re wrong,”



brokers. Everybody wants to trade cryptos because they are the future of money.”

Higgins says obtaining access to liquidity in cryptocurrency trading is a perennial problem for retail brokers in Asia. “There is very little offered and where it is offered, the person who is offering liquidity is normally a bit nervous because they don’t want huge positions to build up. There are some but they are fairly early, fairly slim and fairly expensive to use,” he says.

Gold-i recently launched Crypto Switch, a cryptocurrency solution for brokers that are using MetaTrader 4 and MetaTrader 5, providing end-to-end control over pricing and execution of the order flow. Higgins has a bullish view on the market for cryptocurrencies in the near term and he

forecasts “substantial growth” in cryptocurrency trading in the APAC market. He says the major exchanges in the APAC region will supersede some of the crypto exchanges and will list cryptocurrency products. They will follow on from CME, CBOE and Cantor who launched Bitcoin Futures at the end of 2017.

“Maturity in the APAC market is going five times faster than it did in the rest of the world,” says Higgins. “Everything is happening quicker and quicker.

It is a very demanding market.” He predicts that an “influx of local liquidity providers” will enter China to offer cryptocurrency trading services when the legal framework exists for them to do so. “And the regulations. I am sure the Chinese authorities must be planning it,” he adds.

Regulatory uncertainty is inhibiting clients from investing in cryptocurrencies, according to Scheidt. “We are hearing that clients are keen to have exposure to crypto-assets as part of their portfolio, just as with other asset classes,” he says. “Trading Bitcoin and other cryptocurrencies will be our first priority, although to

It is vital for new entrants in the APAC region to undertake due diligence on possible liquidity providers




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Kurt vom Scheidt

“We are hearing that clients are keen to have exposure to crypto-assets as part of their portfolio, just as with other asset classes,”

begin with trading will likely be limited,” he says. “However, it is anticipated that our offering will enable clients to achieve their main goal of exposure to cryptos by holding them in their ‘wallet’ and therefore enabling them to diversify their assets.”

APAC SHOWS BIG POTENTIALStrong levels of growth in FX trading services in APAC will doubtless make the region play an increasingly important role in the global retail FX landscape. As competition becomes more fierce, having the technological capacity to offer more bespoke trading services will provide brokers with an important competitive edge. Obtaining access to good levels of liquidity and building strong relationships with local regulatory and trading

infrastructure providers is also vital for brokers seeking to have a strong presence in the APAC region. Thinking globally while acting locally is a must. FX brokers serious about building a strong presence in the APAC region need to have a presence on the ground and employ native speakers to provide customer support functions. Meanwhile the burgeoning

FX market in China presents its own unique technological challenges for FX brokers. Overcoming communication latency barriers to provide a high-quality retail FX trading service is of paramount importance. Developing a strong local presence in the world’s second largest economy and becoming intimately aware of the local business culture is also essential. For those that do the necessary homework, the great appetite for speculating on FX in China – and the wider APAC region – provides the potential for bountiful rewards.

FX brokers entering the APAC region have, in the past, paid a price for failing to recognise

the threat of “toxic traders”

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TradeTech: Transforming the Retail FX Industry

TWO MAJOR TRENDSChristian Frahm, CEO, CFH Group explains, “The main focus of the TradeTech Group is to help our broker clients to grow – leveraging our technology, our balance sheet, our award-winning liquidity and our experience in the markets. Working in partnership with Playtech has helped us to see the industry from a fresh perspective – to focus on pushing boundaries and learn

from their experience in the gaming industry.

We are seeing two major trends in the industry: multi-product brokerages - i.e. helping brokers to diversify by offering more products from

the same platform – and automation, which is an area that Playtech has vast experience in from the gaming industry. We can lead the market in both of these areas.”

GROWTH OF AUTOMATIONFrahm predicts, “Over the next few years we will see huge changes in terms of automation and this is an area Playtech is investing heavily in. They have a team of over 100 people developing automated systems and have already created advanced solutions to enable brokers to run an entirely automated business. The industry hasn’t evolved significantly over the last decade but major change is on the horizon and TradeTech is at the forefront of these changes.”

Playtech Plc’s acquisition of CFH Clearing and Alpha Capital Markets has resulted in the biggest and most ambitious consolidation to have taken place in the retail FX industry. The strength of Playtech’s financial division, TradeTech Group, is unparalleled in the sector. Its B2B solutions include multi-asset execution, prime brokerage services, liquidity and risk management tools in addition to the division’s proprietary trading platform, CRM and back office systems, risk management and dealing services. e-Forex talks to senior representatives from across the organisation to find out how TradeTech is transforming the client experience.

Christian Frahm, CEO, CFH Group

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Meanwhile Matthew Maloney, CEO, CFH Clearing, states, “Being part of the TradeTech Group, with the resources of a $4 billion market capital organisation has enhanced our position with our PBs over the last year. Our clients benefit from the strengths of these relationships in terms of the range of liquidity and competitive pricing. With the synergies across TradeTech, we can offer institutional clients access to a broader range of services and tangible business benefits from the organisation’s significant investment in technology.”

GREAT MARRIAGEFinally Muhammad Rasoul, CEO, TradeTech Alpha says, “The TradeTech Group is a great marriage – we have the best in liquidity, execution and clearing from CFH Clearing as well as market-leading risk services from TradeTech Alpha, all backed by the resources and balance sheet of a FTSE 250 company, Playtech.”

“Playtech has the largest balance sheet in the industry,” maintains Rasoul, “and it gives our clients a complete sense of security that, when dealing with us, they don’t need to worry about counterparty risk.”

For more information, please visit www.tradetech-group.com

The MFX Compass price formation methodology

Matthew Maloney, CEO, CFH Clearing

Muhammad Rasoul, CEO, TradeTech Alpha

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The rapid evolution of the FX space has continued unabated over the past year while demand for cutting edge trading technology remains strong. In turn, the White Labelling model has undergone some profound changes to keep up with the pace of change – even branching out into new services, asset classes and geographies. Nicola Tavendale writes.

At one time, White Labelling was the default option for a new broker entering the FX market. The appeal is obvious, with White Labelling helping to provide both quick and easy access to a brokerage unit, while also allowing new brokers to focus on

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Reducing the IT burden Discover what White Labelling services can offer your brand


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client acquisition. And yet the problem with this traditional model is two-fold, argues Mark Chesterman, Chief Operating Officer, IG Institutional. “Firstly, the broker is building a brand based on someone else’s technology,” he explains. “They have no control over that technology, no control over new features or developments - and they are helping their clients learn to trade on a larger broker’s (often proprietary) platform.” Secondly, the White Label solution makes it very difficult for a broker to switch service providers, Chesterman warns. As a result, moving clients from one White Label to another can be time-consuming, difficult to manage and, under the traditional White Label model, liable to significant client attrition.



at their disposal, Elston says. “From a more fundamental perspective, we want to ensure that counterparties have a truly agnostic product to offer,” he adds. “If there’s one aspect that defines how FX White Labelling is evolving right now, it’s about empowerment of the counterparty.”

BUILDING RELATIONSHIPSAlongside the increasing sophistication of partner requirements, additional pressures such as higher customer expectations,

Richard Elston, Head of Institutional, CMC Markets, agrees, adding that although the traditional White Label model may have been an ‘out-of-the-box’ solution, it could also prove incredibly burdensome in terms of end-user administration. “All too often, counterparties would have to communicate with the White Label provider in order to undertake even the most mundane account management functions,” he explains. “This inability to ‘self-serve’ basic administration functions meant that legacy solutions were expensive and difficult to scale.” And yet in today’s market, counterparties can benefit from having an array of account management tools



Reducing the IT burden

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increasing competition and ongoing economic and regulatory threats are also prompting brokers to reassess their business models. “The days of ‘plug and play’ solutions are over,” adds Neil Browning, Executive Director, Saxo Bank. “Clients are now looking to work with providers whose service range supports a closer level of partnership and integration.” As a result, providers of White Labelled services are beginning to tailor their solutions according to the different requirements of their partners, Browning explains. “Hence the development of different types of White Label partnerships,” he says. “Even the largest sell-side firms are showing greater openness to deploying third

party capabilities - and therefore providers are having to adapt their models to reflect the differing models of their partners.”

In addition, platform providers may decide to offer their solution as a grey label to brokers who want to avoid the setup costs associated with White Labelling, according to Michael Karczewski, Head of Business Operations, Match-Trade Technologies. “But the reason they do so is because they believe this grey label will, one day, become a White Label,” he adds. And yet the White Label model remains ideal for small- and medium-sized brokers, because they are then able to benefit from technology providers’ proven solutions and experience, he argues. “Demand for FX White Labelling will continue to mount,” Karczewski adds. “Developing solutions from scratch is becoming expensive and requires adequate IT resources. So for most brokers, it is far more effective to outsource all technical aspects of their brokerage business to external companies, which in turn enables them to focus on their sales and marketing efforts instead.”

However, most leading brokers do not license their solutions to third-party brokers, Karczewski claims. “Even if they do, their solutions are customised mostly to individual brokers’ needs,” he adds. Ultimately, technology providers understand this and that the most important factor which brokers look for in a solution is flexibility, Karczewski explains.

Yet according to Jacques Sale, Institutional Relationship Manager, Dukascopy Bank, it does tend to be experience that wins out in the end. “Entrusting your business to a

Mark Chesterman

“The growth of API capability also supports more complex, bespoke product offerings that enable differentiation. It’s important not to underestimate the flexibility a more modern, multi-service provider model delivers.”




company that purely provides technology can sometimes be counterproductive,” he warns. “In this space, you also need support from those who have some experience and familiarity with market dynamics and possible future scenarios.” As a result, he urges brokers to instead look for a solid and reliable partner that has been in the industry for several years. “They can then help the broker avoid unpleasant situations, as well as providing marketing support, risk management and other backing - something that an IT provider may not be able to do,” Sale adds.

STANDING OUT FROM THE CROWDChesterman agrees, adding that outsourcing different requirements to specialists in their field allows brokers to define their offering much more clearly. Also, because there are a large number of platform providers in the market, brokers are now able to offer more than just the ubiquitous MT4 platform with ease. “Most platform providers will support the back-office requirements too, and the major bridges will connect these platforms to the liquidity providers, not to mention the

plethora of reporting solutions available for both client and regulatory reporting,” adds Chesterman. “This means that the broker is never tied to a White Label provider who may well be a competitor, can move service providers much more easily if they need to and is able to have much more control as they create a USP for their target audience.”

Furthermore, larger brokers tend to have their own proprietary platform on which they spend significant sums. And as these are being developed for the

White Label partners seem to be looking for broader and deeper partnerships than perhaps ever before




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brokers’ own clients, they are incentivised to ensure stability across the ecosystem. Yet according to Chesterman, if a broker is integrating many different service providers, this then creates potential areas of instability. He adds: “In addition, there is a cost associated with maintaining the integration of a number of different service providers, whereas a White Label is a lower cost model.” However, one of the key advantages brokers require from a White Label provider is readiness and the technical ability to share custom settings and income generation sources with the White Label client, argues Sale.

“At the beginning of a new White Label partnership, the new client is focused on simply launching the service

and may have only limited understanding of how the project will evolve, or what the performance indicators should be,” Sale explains. “However, as the client gains in experience and understanding, then the White Label partner will naturally start looking for more opportunities to exploit the business activity his client base is generating - and this is when they start searching for more customised options.”

Also, brokers will naturally be keen to differentiate their White Label from others in the market. Trader’s will tend to know very quickly if a platform’s technology is backed by a particular White Label provider, Elston explains. “At CMC Markets we take a modular approach, meaning we can make each platform look that much more bespoke,” he adds. “For example, we can tailor it to show the specific asset classes required for the relevant geography they are operating in. That is the differentiation we can offer, rather than a ‘one-size-fits-all’ solution.”

LEADING THE WAYEven so, competition in the White Labelling market is very tough, warns Karczewski. “So as a technology provider, you have to be a one-stop shop

where your client can find all the solutions they need,” he explains. “Therefore, the portfolios of most White Label providers look very similar.” Yet Match-Trade believes that brokers do not really need another 10 new indicators in their platform when there are already 40, for example, as this won’t differentiate them from other brokers. Instead, Karczewski believes that technology providers should be able to predict trends and keep up with innovations such as the growth of binary options, or more currently the growth in cryptocurrencies or social/signal trading. “Being first on the market with an innovative solution is the best way to differentiate your client from other White Labels,” he adds.

Advances in consumer industries have also created an expectation among end-customers for real-time responsiveness, customised functionality and a seamless interchange between devices, platforms and channels. Browning explains: “Our White Label Partners are telling us that the ability to deliver a differentiated user experience is a major competitive differentiator. In order to support this ever-increasing requirement, White Label providers must ensure their platforms are based on OpenAPI technology, just like SaxoTraderGO.” He adds: “In fact we believe

Richard Elston

“If there’s one aspect that defines how FX White Labelling is evolving right now, it’s about empowerment of the counterparty.”

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that over time, API based communication and data exchange will be a prerequisite in the finance sector.”

Open API and HTML 5 - the environment in which CMC Market’s out-of-the box White Label model operates – also provides tremendous flexibility, according to Elston. “It makes individual modules available for potential deployment into third-party environments,” he explains. “We see it as an important part of growth going forward into next year.” Furthermore, the demand for enhanced functionality and features has also led CMC Markets to offer a number of

more sophisticated solutions beyond its traditional White Label trading environment, such as its TradeSplitter tool. This is adapted for specific business lines, such as discretionary managed accounts, and allows the client to choose how a single block order is allocated across defined customer accounts, Elston explains. CMC Markets also provides a flexible account structure, which allows brokers to operate different business streams independently. REGULATORY DRIVERS“And on the basis that the new world of MiFID II means accurate and timely trade reporting is more important

than ever before, we offer elements such as delegated EMIR reporting,” Elston adds. “This makes the reporting obligations of each broker than much simpler, with data files produced in a generic format that can be pushed straight into the necessary back office systems.” In addition, the US has also introduced a regulatory mandate that requires platforms to provide detailed trade reports to customers and brokers. “Based on these needs, we have changed the reports and account settings in line with the partner’s directives,” Sale says. “Having direct development access and being able to intervene immediately to change the product as needed is a key strength of Dukascopy Bank.”

Over the past few years, banks have also continued to face challenges in terms of capital allocation and expenditure, meaning their preference for proprietary resources and solutions is no longer viable. As a result, banks are using industry utilities and third party resources as a much more integral part of their business models, Browning observes. White Label providers are having to respond to this need by providing outsourced solutions in non-traditional areas, such as reporting and portfolio management. “For White Label providers like Saxo, which already has its own offering in each of these areas,

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Brokers will naturally be keen to differentiate their White Label from others in the market.

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there is a real opportunity to fulfil this increasing need,” says Browning. “Providing the front office and trade execution capabilities has also led to the servicing of middle- and back-office needs, such as enhanced risk management, reporting capabilities, settlement or the safekeeping of securities. This is a trend which we expect will continue.”

Browning also attributes much of Saxo’s success in White Labelling to its investment in trading technology. For example, SaxoTraderGO – a trading platform-based on REST-based OpenAPI - has been rapidly adopted by over 100 WLPs, who are now offering it to their end-customers. The use of OpenAPI also allows clients to build tailor-made apps on Saxo’s infrastructure and to integrate into their own applications and systems. “At Saxo, we believe that partners have a third option - to work with a leading broker which also has a proven track record of technological innovation,” Browning explains. “Testament to this model is the growth of our White Labelled business. In the last year, there has been near a 10% increase in the number of White Label Partners to over 120, which includes

some 10 cross-border banks.”

WIDENING THE MARKETEven so, at the moment FX White Labelling is still mainly addressed to retail brokers, argues Karczewski. However, Match-Trade Technologies has widened its potential White Label market base by offering its White Label model to brokers who are also interested in becoming liquidity providers. “The Match-Trader System, based on our robust matching engine, is a solution very similar to those used by biggest liquidity providers in the forex industry - and is much more professional than providing liquidity through a coverage account on MT4 or MT5,” he explains. “Additionally, we are currently adjusting our matching engine to be able to work as cryptocurrency exchange with a White Labelling feature.”

Because APIs are also so well serviced now by a number of different parties, there is very little complexity in integration, Chesterman

Neil Browning

“We believe that partners have a third option - to work with a leading broker which also has a proven track record of technological innovation.”

Competition in the White Labelling market is very tough




Fundamentally, you have some industry-standard products which are very strong in terms of their own brand, and in terms of the features which traders want, but which do virtually nothing for the broker. What the broker is concerned with is finding customers and getting them through what is often a complicated, difficult regulatory process, one which they can’t make shortcuts on. And then providing the information, training and support needed to retain those customers. The big branded apps do not do any of that.

Now is a time of big change in the industry, brokers are being asked to consider upgrading their platform and start working with a different product. Alongside that we’re seeing some consolidation of the market, with fewer of the smaller, ‘broker-in-a-box’, companies. We’re seeing some brokers investing in really working well with their customers – there will be fewer successful brokers and those will be the ones doing a much better job.

White Labelling Mobile AppsPaul G Smith, CEO of Mobile Trading Partners, explains the key changes taking place in this lucrative, and vital, sector.

Every broker needs their own apps, to help them sign up, communicate with and retain traders for the long term. Retention has been a buzzword in the industry for some time, but saying it’s not the same thing as doing it. In the modern world, for example in Indonesia, there is a 140% penetration of mobile devices – for many brokers mobile may soon be the only way to communicate with their customers.

White Labelling is really the only way to go, unless the broker plans to spend half a million on building something completely

Paul G Smith

new. It doesn’t make sense to be reinventing that wheel every time somebody wants to have an app. But if it’s just a case of putting a bit of lipstick on a ready-made solution, then that’s not so special. It’s far better to use a White Label and the building blocks it provides, to create something that is indisputably the broker’s own product in the eyes of the trader.

For many brokers mobile may soon be the only way to communicate with their customers.


adds. As a result, this removes one of the traditional hurdles to a liquidity provider model because the broker needs very little technical expertise, so can focus on their core competencies instead. “The growth of API capability also supports more complex, bespoke product offerings that enable differentiation,” Chesterman says. “It’s important not to underestimate the flexibility a more modern, multi-service provider model delivers.” For example, under the traditional White Label model, if your provider cannot offer bitcoin, you also can’t offer bitcoin, he explains.

But in a multi-service provider model, it is much easier for a broker to source crypto-liquidity and plug it in to their platform. “Not being tied to a single service provider provides means a brokerage can be much more agile in responding to market trends,” Chesterman says. However, the risks that these tools can bring to the customer - and to the bank itself - must be considered, warns Sale. “We are talking about a product that does not exist legally, at least not in the vast majority of countries,” he adds. “So our customers will judge the success, or not, of cryptocurrencies over time - we can simply provide them with the ability to access these instruments and then let time decide.”

NEW MARKETS, NEW OPPORTUNITIESSaxo Bank’s clients are also keen to have exposure to crypto-assets as part of their portfolio, just as with other asset classes, adds Browning. However, most are only planning to proceed with this strategy once crypto-currencies are offered by regulated banks - and as crypto-currencies are not yet mainstream, this is not possible. “Trading bitcoin and other cryptocurrencies will be our first priority, although to begin with





trading will likely be limited,” he adds. “However, it is anticipated that our offering will enable clients to achieve their main goal of exposure to cryptos by holding them in their ‘wallet’ and therefore enabling them to diversify their assets.”

A further area of potential growth is likely to come from Asia and Latin America, adds Browning, driven by White Label Partners in these regions needing to meet the increasing demands of their end clients, who have high expectations in customer service. “Also, partners in these regions are not constrained by the legacy and proprietary technology issues which many financial services organisations have faced in western developed economies,” he adds. Sale agrees in the growth potential seen in both regions, both in terms of economies and demographics. In addition, the Gulf countries have “always had an economic value and a remarkable potential” he adds, as well as an often-overlooked Continent: Africa. “Present-day, it is a market that presents many problems from different points of view, regulatory, political, and economic,” he adds. “But these countries have huge potential and, aside from South Africa, there are still new markets to be discovered.”

Karczewski adds that Asia is also the fastest growing market in FX industry, which

means there is huge demand for FX White Label services. “This is why we decided to open new office of Match-Trade Technologies in Kuala Lumpur,” he explains. “We expect this move will help us further increase our share in the Asian market.” In all regions, a strong track record and operational support are very important factors in choosing a White Label, he adds, but in Asia strong relationships and trust are particularly vital. “If your client knows he can trust you, then he can focus on other important aspects of his business, such as sales and marketing,” Karczewski says.

ENABLING CHANGEChesterman agrees, adding the one thing that both White Labelling and using a multi-service provider model have in common is that it is critical to ensure you are partnering with reliable counterparties - whether that’s for liquidity, platform, back office, or for a full White Label solution. “There has to be a mutual trust

Michael Karczewski

“If your client knows he can trust you, then he can focus on other important aspects of his business, such as sales and marketing.”

Jacques Sale

“As the client gains in experience and understanding, then the White Label partner will naturally start looking for more opportunities to exploit the business activity his client base is generating.”


that all parties will perform to the highest standards to ensure as much business risk as possible is mitigated,” he warns. “Tight spreads are an important consideration, but not the only one.” Instead, the full cost of trading needs to be considered, from spreads to slippage to outages. “Reliability is critical to the success of a brokerage, so all partners in a supply chain need to play their part,” he adds.

For example, CMC Markets has been delivering White Label products to clients for the best part of twenty years, says Elston. “This successful legacy alone offers many counterparties the reassurance they need that CMC Markets is the partner for them,” he adds. “We’re not focused purely on FX either, but instead have always had a truly multi-asset proposition, whilst the strength of our balance sheet not only delivers confidence in the operation, but also ensures that we can tap into the deepest market liquidity.” And looking ahead into 2018, Elston expects that MiFID II compliance will be at the forefront of many partnership decisions. “But again, we are confident that as a business, our solutions will continue to adapt to meet the ongoing theme of evolution that prevails in our industry,” he adds.

Ultimately, White Label partners seem to be looking for broader and deeper partnerships than perhaps ever before. “This is because in many cases the need for White Label partnerships is a means of achieving a strategic shift, such as moving quickly into a new market segment, ensuring regulatory compliance or implementing a digital transformation strategy,” Browning concludes. “As a result of this trend, White Label providers need to be able to offer a sustainable, scalable service proposition with flexible infrastructure and multiple platforms.”



Tom Higgins

What do retail brokers need to be aware of in terms of offering cryptocurrencies?

In terms of trading cryptocurrencies, there are three distinct strands – physical, CFDs and Futures. Brokers need to be very clear about what they are offering as their end clients don’t always understand the difference. The most appropriate strand currently is the CFD option as brokers can either cover their risk with a traditional LP or warehouse the risk.The Futures market, however, is developing rapidly, with exchange operators such as CBOE and CME Group – two of the world’s largest options and future exchanges - launching exchange-traded funds based on digital currencies. This will significantly impact the market by providing a regulated trading venue for cryptocurrencies. It will make cryptocurrencies much more of an institutional-style asset class and will significantly reduce volatility.So far, it’s been


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How to maximise Cryptocurrency opportunities

very much a ‘buy and hold market’. However, once the institutions become involved, cryptocurrencies will be traded very much like other asset classes. This creates a huge opportunity for retail brokers to diversify and add a new revenue stream with a new product offering.

What is your advice to brokers who want to extend their product range to cryptocurrencies?

Brokers need to ask themselves three questions:1) Which products are you

offering?2) How will you cover this in the

market?3) What kind of trading model

do you plan to use – A-Book, B-Book or Hybrid?

They will need to have detailed discussions with their technology providers to help them to make their decisions about what is feasible – it’s not as straight forward as you may think.

Having been crowned Best Cryptocurrency Service Provider at the Finance Magnates awards, Gold-i is leading the way in helping brokers worldwide to offer cryptocurrencies to their clients. e-Forex talks to Gold-i’s CEO, Tom Higgins about the ‘cryptocraze.’

How is Gold-i’s technology supporting brokers?

We have developed a Crypto Switch which works across all platforms and offers brokers access to leading global Crypto Exchanges and Liquidity Providers for both pricing and trading. It gives them full control over pricing and execution and the choice of primary/secondary feeds or full aggregation. Our Crypto Switch is proving to be the most sought after product we have ever launched – a sign that cryptocurrency trading is not just a fad but is certainly being taken seriously by brokers worldwide who are keen to seize the opportunities created by this exciting new asset class.

For further information about Gold-i’s Crypto Switch or to request a product demo, please contact [email protected] or visit www.gold-i.com

179 Goldi SS.indd 1 15/12/2017 10:25

With that in mind, the major players in the retail FX and CFD market have for many years been turning their attention to how they can improve access to liquidity - CMC Markets is certainly no stranger to this campaign.

Having meaningful access to liquidity is certainly no new phenomena but existing problems were further highlighted in the wake of the Swiss National Bank’s removal of the EUR/CHF peg in early 2015. This resulted in a number of prime brokers backing out of the market altogether, whilst those who remained took a string of business decisions which ultimately limited the number of counterparties they were willing to work with.

API DIRECTSo exactly what is CMC Markets doing in this space? There are two key operations in play - the traditional source of liquidity known as the OTC API or API Direct, which was designed for and has been deployed by

institutional partners around the globe. This offers counterparties access to the liquidity generated off the back of the company’s own significant internal flows of business. The prospect of consistent pricing and market depth across more than 350 different instruments including FX pairs as well as Index, Commodity and Treasury CFDs - all from a single source - gives those institutional clients the confidence to know that they are in turn providing a market-leading, multi-asset solution to their own clients.

FX PRIMEAPI Direct is complemented by the new FX Prime product, which was launched early in 2017 to open up CMC Markets’ relationships with other liquidity providers - including Prime Brokers - for those counterparties wanting to receive institutional grade FX pricing. In other words, institutions can readily tap into pricing from a whole pool of tier one liquidity providers and whilst that’s not an insurmountable challenge to face, sourcing

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The harsh reality is, that in the absence of good liquidity, markets will be far from efficient. The client experience will be poor and counterparties are going to be working even harder to find profitability.

from a single, reputable entity certainly provides a significant element of convenience. CMC Markets leverages its own balance sheet to facilitate this, and CMC Markets’ partners can use a proprietary, institutional trading user interface, along with a comprehensive suite of reporting and analysis tools, to manage their own positions.

On top of these consistently stable routes to liquidity, CMC Markets also provides a great deal of visibility over the real time level of liquidity that’s available, regardless of the solution the counterparties elect to use. API Direct offers certainty over the market depth for any specific instrument as well as the knowledge that counterparties are getting access to the most consistent pricing that’s on offer - what you see is what you get. Contrast this with the FX Prime proposition and prices can at times be even more competitive, although the trade-off here is the resulting fluctuations in market depth. Once again though, counterparties have the

Tackling the liquidity crisis with CMC Markets

180-181 Provider Snapshot.indd 1 15/12/2017 10:30

ability to select the solution that’s going best meet their needs - the choice isn’t between ‘take it’ or ‘leave it’. What’s more, CMC Markets offers all its partners the flexibility to conduct their chosen integration rapidly, either directly using an industry standard FIX API, or by routing through their existing third party fintech solution providers.

By using this two track approach, the company has been able to make meaningful progress in helping address the liquidity problem. Bolstered by the fact CMC Markets is a multi-million-pound entity with a premium listing on the


SOLUTION SNAPSHOT

London Stock Exchange to boot, the ability to connect liquidity from many high profile financial institutions or even the company itself to smaller FX houses is just one factor that continues to drive growth in the company’s institutional business.

CMC PRIME DERIVATIVESAnd the quest for better liquidity doesn’t stop there either, with CMC Markets already working on the next development. CMC Prime Derivatives will provide a new, dedicated platform which will over time expand to allow institutional clients access to thousands of global single stock

CFDs and listed derivatives as the company responds to client demands for access to an ever increasing list of assets. The challenge clearly extends well beyond the major FX pairs.

Financial markets have always been incredibly capable of responding to change - and the quest to ensure there’s good access to liquidity has proven to be no different. The Prime Brokerage divisions of some of the world’s biggest banks may have taken a step back, but a number of the established retail players - including CMC Markets - have been quick to come forward with a solution.

CMC Markets Webtrading Client

180-181 Provider Snapshot.indd 2 15/12/2017 10:30

Retail trading in ChinaSome thoughts about IBs and the marketRetail trading in ChinaSome thoughts about IBs and the market

By Luis Sanchez, CEO of BMFN


Everyone understands and is aware that the retail FX business in China is 99% conducted via the IB. The majority of brokers provide all the necessary tools, features, products, rebates, commissions, marketing camp’s, gifts, etc., oriented to attract, keep and satisfy their IBs. Their entire business model is based around IBs. For example at BMFN we have over 10,000 IBs and we have developed all the tools and automated them in order to assist our IB partners.

Every year more and more FX brokers appear in China. For example, Money Fair is a fi nancial show in Shanghai, where at least 1 million people visit throughout the weekend. This year the show was 95% FX, a very high percentage compared with past years, and this is an indicator that the regional FX market is growing fast. This market growth will encourage the development of new lines of business independent from the IB business.

PUTTING UP BARRIERSSo why has the retail FX market not developed in China as fast as elsewhere and what is needed to facilitate this? This is the question that many people ask. There are many factors to consider, but we need to

understanding of the FX market. So, as a result, many retail clients may feel this a big obstacle to entering the market. They may think that they don’t have suffi cient knowledge to be able to manage their funds properly and also that they don’t have the time to learn how to trade themselves and if they do learn, how many years will it take for them to be profi cient at it? With this fi rst barrier to entry most clients prefer that someone else manage their funds.

IBs may also tell retail clients that the use of electronic platforms is highly complicated, with too many features, too many indicators, options, and too many tools. As a

understand fi rst the Chinese culture, the way Chinese people live, what they want and what they are used to. Do Chinese people want return on their assets? Yes - and they are constantly looking how to increase their profi ts and are open minded for new products. But do they have the time to trade? Do they want to learn how to trade? Do they think that trading is simple?

The culture here represents a very strong roll, and products have to be developed fast and according to specifi c needs. An important point to consider is what an IB may be telling the client. For example they might say that trading requires a high level of knowledge of the fi nancial market, years of trading experience and in-depth

182-183 BMFN Expert Opinion.indd 1 18/12/2017 09:26


result retail clients may also see this as a second barrier to entry.

Finally, some IBs may also explain that another factor to consider is what pair will you trade and what instrument? Currencies, index, oil, ETF, etc etc, so once again the retail investor feels that this is definitely too complex for them to do and would prefer that someone else manages their funds. On top of this add in the fact that a retail client might be from a small isolated town that has never heard much about FX and it is not suprising that they don’t feel very confident in trading the market themselves.

WHAT CAN BROKERS DO?What can brokers do to

overcome these issues? And perhaps more importantly should they go after retail clients directly or stay with the existing IB and MM model? An IB can bring in thousands of dollars on a consistent basis, but an individual retail investor. How much can they bring in? 50 USD, 300 USD. It clearly will require a huge effort and investment from a broker to find sufficient new clients that will be equivalent to one good IB. So this is the first thing to consider.

Every day in China people receive half a dozen calls selling them different things, so the majority of the people don’t even answer the calls, and if they do, they hang up in 5 seconds. So imagine even if you can reach this person, how do to explain what the FX market is and the opportunities it presents over the phone. It’s really very challenging. Furthermore one is not allowed to sell leads and data in China, so it is very difficult to get sales contacts and telephone numbers to call on a daily basis. Running marketing campaigns is expensive and complicated with poor results. So it’s not surprising most FX brokers prefer to invest in IB’s

and MM’s.

For those brokers that do still want

to enter the retail market in China

solutions to

EXPERT OPINION

Luis Sanchez

these problems are not easy to find. Education is one option. Providing potential clients with an educational program in a very simple way so they can understand the ABC of the FX market can be very useful and of course it’s much better that they at least have a basic idea of the market rather than no idea at all.

Focusing clients attention on just the key functionality of trading platforms is another good idea. Buy, sell, open and close etc. And also the most tradable pairs. At BMFN we have developed a simple app that offers trading via mobile devices only. Clients can download it, open an account and start trading, all in 30 seconds! We are offering this to our retail clients and other brokers that want to quickly enter the business. We recently launched this platform at the Money Fair expo, and it was a great success. Clients find it simple, user-friendly, effective and providing as good execution as any other platform. More information is available at www.eforex.com.

To conclude, retail trading in China is shaping up to be very interesting over the next few years but today the market is still dominated by IBs and MMs. Chinese people need more time to learn more about the markets and become more confident in trading themselves.

182-183 BMFN Expert Opinion.indd 2 18/12/2017 09:26

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Emerging Market connectivityThe key to capturing new FX trading opportunities


Reaching natural liquidity when trading EM currency pairs requires a connectivity provider that has the resilience and reach to provide access regardless of local environment as Dan Barnes discovers.

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Firms looking for liquidity in emerging market currency pairs can typically find trading opportunities in the major data centres in developed markets. However trading directly into the national market can provide natural liquidity, sourced from corporates and investment firms who engage with overseas counterparts for business.

“I would say emerging market connectivity isn’t necessarily about low latency, particularly in Asia,” says James Banister,

CEO of FXecosystem. “I think the local market, if we can frame it like that, has different drivers. There are exceptions in some of the major hubs such as Singapore and Hong Kong, either firms trading locally or back to London. But if you are a regional bank the priority is more about being able to get the overall trade done and less that it’s done at an ultra-low latency. The volume of transactions is just not the same as it would be in the major trading centres of London, New York and Tokyo.”



Emerging Market connectivity

“You have to make sure you have a reliable service that encompasses all of that, to be fully operational 24/7, to be able to handle any issues and queries around connectivity or serviceability,” says Banister. “We pride ourselves in being a fully managed service, so we are not circuit provider dependent. We have a roster of circuit providers that we use in all our different locations and always seek out the best solution for a particular client. Banks, institutions and retail brokers have different requirements and therefore we offer them slightly different services to meet their specific needs.”

Alex Walker, Executive Vice President and Managing Director of Transaction Network Services’ Financial Services Division, says that in addition to having the local contacts where a firm wants to establish connectivity, which is a major operational hurdle, firms also need to consider return on investment and total cost of ownership.

“The cost of establishing that service must be assessed, because whereas you may have a relationship with somebody that you want to trade FX with, is there enough profit in that relationship to warrant the cost of a specialised connection?”

he says. “I think that’s where we would see demand coming in, for example when there is an international or overseas player in an area who wants to participate in FX trading, we would be the organisation that helps to fulfil that back end connectivity.”

That is particularly relevant in areas that are very fragmented from a communications and connectivity perspective. Asia can be an expensive and complicated area in which to acquire connectivity. As such having the support of a business that has already established a significant presence in that region can be immensely helpful for trading firms seeking liquidity from trading counterparties, ECNs and providers. In addition to the benefit of community reach, the ability to tap into facilities that

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James Banister

“I would say emerging market connectivity isn’t necessarily about low latency, particularly in Asia,”

The challenges in connecting to local markets differ according to the types of connectivity provider being used. For major telco providers, the focus tends to be around having resources on the ground, with local knowledge, local language experience and being able to have the processes and agreements in place to build out these networks.

“The beauty of BT Radianz is that we have actually got the networks in what you describe as emerging markets whether Argentina, Saudi, Malaysia or the Philippines we have got the network already built out,” says Yousaf Hafeez, Director, Capital Markets Development, BT. “So what we try to say to our customers is, we have hopefully taken that pain away from you, the network is there, ready to be used today. So in terms of FX connectivity, for a regional bank who has a particular FX problem, that infrastructure exists, it’s in the ground.”

For non-telco firms, providing connectivity via a managed service in emerging markets, the same hurdles in those markets can often be the same ones seen in London, New York and Tokyo, primarily being at the right data centre, having the right connectivity and if they are putting out circuits to clients outside of those data centres, making sure they are on the right circuits for particular client profiles.


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are already in existence greatly helps to speed up the process.

THE RIGHT QUALITIES“A particular challenge faced by FX trading businesses is creating the optimum low latency trading facility, and by that I mean the connectivity as well as the applications and the software that you use to trade,” says Walker. “It is a challenging exercise and requires a considerable amount of money to build up that infrastructure. Now one of the things that can be done in terms of assisting that low latency trading, is to have your facilities as close to the source of liquidity as possible and to achieve that you will need co-location facilities close to or within that liquidity sources data centre. That is one of the areas that we have identifi ed over the last number of years and why we developed our managed hosting, co-location and connectivity solutions.”

Where a provider manages the hosting service within the environment that a fi rm needs to be located, such as being in the same data center as an ECN or major liquidity provider, that will typically achieve the lowest latency for the trading fi rm.

“It’s not always the case that all trading parties are within the same facility or even within the same city and where that is the case, you need to make sure that you have done the due diligence to understand where the lowest latency connectivity paths are, between one part of the region and another part of a region, or indeed between regions,” says Walker .

Hafeez notes that building out a very resilient network is crucial to BT’s model in order to provide reliability regardless of the geography that a client works within.

“Worst case scenario there is a service available at any given point in time, so the




way we try to do that is we work with different tariffs, different partners to make sure, it is totally diverse and totally resilient,” he says. “There are challenges to bypassing tried and tested infrastructure. If you put in a satellite route in some of that infrastructure may disappear, where a more robust solution is cables in the ground thereby eliminating some of that risk but also giving our customers resiliency and reliability they need.”

When a firm moves into new geographies, especially when using new infrastructure, it must be conscious of the climatic and atmospheric challenges that might impact connectivity. This is by no means an emerging market problem – Hurricane Sandy in the US was a major weather event that caused chaos in the financial centre of New

York and Japan has been hard hit by a major tsunami recently– however if a firm is working in emerging markets for the first time it must be sure that the connectivity component of its infrastructure is fit for purpose.

“On both of those occasions we were able to stay running for our clients and they were able to sustain trading,” says Walker. “But that comes through looking at the risks, evaluating those risks, and building an infrastructure to enable the service to be provided. I will give you a good example, in Tokyo which is on one of the fault

lines, we have been very careful to make sure that we have got services which are diversely connected on either side of those fault lines.”

That means that, in the worst possible circumstances, a catastrophic event occurred between one side of that fault line and the other, the firms would have the ability to maintain connectivity through that network.

“That does not come easy, there is a lot of due diligence involved in doing that, and there is considerable investment that is involved in that ensuring that is in place,” he says.

In addition to resilience an important quality is flexibility

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Yousaf Hafeez

“The flexibility of being able to turn up bandwidth and turn down bandwidth is crucial,”

Asia can be a very expensive area to acquire connectivity

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of service, which can apply to many aspects of the provider’s operations.

“The flexibility of being able to turn up bandwidth and turn down bandwidth is crucial,” says Hafeez. “That’s the service we offer our customers, to virtually turn up bandwidth, as they require. And the other thing about that is it allows them to have the ability to access new markets as their trading strategy changes. We try to offer a connectivity model to give our customers the flexibility they require at the price point they need, but also the ability to access the liquidity they need as well.”

FULLY MANAGED SERVICESA fully managed service and the less common software defined networks (SDNs) offer users outsourced services which provide reliability with an infrastructure behind them which can quickly respond to service issues.

“It’s the crux of what we do,” says Banister. “There are many advantages associated with managed services and software defined networks, for example we can put in connections quicker and faster than an institution that has to go through a very strict protocol internally. For example,

we can shorten that protocol because we are an independent technology provider.”

The future of connectivity services provision is SDN, according to Banister, and the cost of SDN is now coming down radically from 18 months to two years ago.

“We are exclusively a Cisco user and have therefore been looking at a Cisco solution around SDN provision,” says Banister. “It is becoming far more cost effective to offer software as a defined network, to control cross connects and turn them on and off as required. It’s important to

When a firm moves into new geographies, especially when using new infrastructure, it must be conscious of the climatic and atmospheric challenges that might impact connectivity



NETWORKS, HOSTING & CONNECTIVITY

highlight that we don’t just focus on connectivity. We also monitor all data passing through our network to make sure that there are no dropped data packets and that the networks are operating effectively at all times.”

Walker says, “Infrastructure as a service (IAAS) extends beyond just the connectivity piece. It would include high performance connectivity, but it also includes the provision of co-location and managed hosting services. This extends the reach beyond just the connection between two data centres for example, or right up to a customer’s site. The terms

IAAS and managed service are used interchangeably, although I do think that as a fully managed service you are getting a higher level of attention and service, - the reach goes beyond just the simple provision of the environment. It’s about being able to provide firms with monitoring and management as well as the performance statistics that they will need in order to be able to make sure that the service they have invested in is fully supporting

Alex Walker

“In Tokyo which is on one of the fault lines, we have been very careful to make sure that we have got services which are diversely connected on either side of those fault lines.”




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In frontier markets which may lack the same types of telco networks as developed markets, trading businesses might need to look outside of the box for solutions

their trading activities. SDN is advancing rapidly and we will develop tools to enhance the customer experience as we move forward, for now it’s not capable of fulfilling a comprehensive service to our customers, but it won’t be long before it is.”

For the end user, the difference that they might see using an SDN as opposed to more traditional offering will depend on what level of service the providers is offering the client. There will not necessarily be a visible difference unless the provider offers the user some form of portal at the front end, to conduct functions such as ordering a cross-connect to speed up the process of getting it engaged.

“There are huge efficiencies to be gained from SDN,” says Banister. “Our clients will have access to an FX portal through which they will be able to see all their services. They will be able to self-determine which markets they want to link to and will be able to quickly turn these on and off. For example, they may wish to set the service to switch on liquidity in London tomorrow and stop liquidity in New York for a week. They will be able to activate these requests themselves, with the right client permissioning. It will become a little bit like Software as a Service (SaaS) where you can take the service on demand. The SDN is just the mechanism for delivering that.”

TAILORING TO YOUR NEEDSDepending upon the specific market and the existing infrastructure, firms may need to engage with consultancy and bespoke services to get access to the markets and counterparties they need. In frontier markets which may lack the same types of telco networks as developed markets, trading businesses can look outside of the box for solutions.

Hafeez notes that using the BT Radianz model there is no consultancy required because the offering allows connectivity across markets, and is designed to reduce any need for

customer involvement. “If you start wanting connectivity in a mining field which is 100 miles away from any sort of city, and there is no infrastructure nearby, you may need some sort of professional consultancy to help you design and develop the most appropriate solution,” he says. “But given we are typically targeting capital market customers, what we try to do is design a solution that doesn’t require any consultancy services. We try to make it as simple as possible. It’s a model they have used for a number of years, it has been used globally it’s a proven technology so I think we have eliminated that need.”


The trading of derivatives such as futures, options, and over-the-counter (OTC) products or swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. All references to futures and options on futures trading are made solely on behalf of the FCM Division of INTL FCStone Financial Inc. All references to and discussion of OTC products or swaps are made solely on behalf of INTL FCStone Markets, LLC (“IFM”). INTL FCStone Ltd (“IFL”), a company registered in England and Wales (5616586) and a wholly owned subsidiary of INTL FCStone Inc. [NASDAQ: INTL], is authorised & regulated by the Financial Conduct Authority (FRN 446717). INTL FCStone Pte Ltd (IFP), is licensed and regulated by the Monetary Authority of Singapore license no. CMS 100476-1. IFM’s products are designed only for individuals or fi rms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of IFM. Copyright 2017 ©. All rights reserved.

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