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Taking you from peak to peakRisk Warning: Trading CFDs involves significant risk of loss.

FxPro UK Limited is authorised and regulated by the Financial Conduct Authority (registration no. 509956). FxProFinancial Services Limited is authorised and regulated by the Cyprus Securities and Exchange Commission (licenceno. 078/07).

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We have interviewed several leading FX ECNs in this edition and the consensus seems to be that customers particularly appreciate the independence of these platforms, the diversified nature of their client mix and the breadth and depth of reliable liquidity they provide. Although competition between ECNs remains fierce and innovation looks key to their survival, ongoing support from market participants seems guaranteed because, apart from anything else, in times of market stress, as we saw earlier this year with the SNB event, people are reminded of the real benefits they can provide.

The consequences of the SNB crisis continue to reverberate across the industry and many commentators believe that January 15th has been a wake-up call for the whole industry. Retail FX brokers in particular need to urgently re-evaluate the way they manage and react to various types of risk to avoid being exposed to future Black Swan events. Other hot topics post “Swiss Thursday” include Liquidity Management and Market Access. Relationships between price takers and makers are now more important than ever before but they are increasingly fragile. The cost of capital and clearing is also going up and many of the traditional prime brokers are limiting their activities around certain types of entities and regions. As a result increasing numbers of smaller institutions, who are looking to participate in the market but not possessing the right risk profile, will need to access credit through an intermediary which is likely to lead to the continuing growth of the Prime of Prime (PoP) services sector. This all means that Risk and Liquidity Management are likely to remain priority topics for us for the foreseeable future.

As usual we hope you will enjoy reading this edition of the magazine.

Charles JagoEditor

Welcome to

Summer 2015

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

Larry [email protected]

John [email protected] Manager

ASP Media LtdSuite 10, 3 Edgar Buildings, George Street, Bath, BA1 2FJ United KingdomTel: + 44 (0)1208 82 18 02 (switchboard)Tel: + 44 (0)1736 74 11 44 (e-Forex sales & editorial)Fax: + 44 (0)1208 82 18 03

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e-Forex (ISSN 1472-3875) is published quarterly in January, April, July and October www.e-forex.net

Subscriptions Subscription rates (including postage)UK & Europe: £150 per year. Overseas: £175 per year.Please call our subscription department for further details:

Subscriptions hotline: +44 (0)1736 74 11 44Although every effort has been made to ensure the accuracy of the information contained in this publication the publishers can accept no liabilities for inaccuracies that may appear. The views expressed in this publication are not necessarily those of the publisher.

Please note, the publishers do not endorse or recommend any specific website featured in this magazine. Readers are advised to check carefully that any website offering a specific FX trading product and service complies with all required regulatory conditions and obligations.

The entire contents of e-Forex are protected by copyright and all rights are reserved.

e-FOREXtransforming global foreign exchange markets

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ADS Ad.indd 1 13/03/2015 13:42 ADS Ad.indd 2 13/03/2015 13:42

4 | july 2015 e-FOREX

July 2015

CONTENTS

FOREWORD32. A open letter to e-Forex readersMarshall Bailey tells us about the very positive progress his organisation has made in its effort to help the markets industry on ethical conduct.

LEADER34. Six months on – what has been the real impact of the SNB event?Bryan Seegers looks at the wider implications of the Swiss National Bank (SNB) removing its trading floor and how the industry is adapting to the longer term issues accelerated by its actions.

CRYPTOCURRENCIES 38. Bitcoin versus block-chain - have we put the cart before the horse? Whilst it’s true to say that block-chain applications can sometimes be developed without Bitcoin it isn’t always the case. William Essex discusses the implications this has for the role of crypto-currencies in FX.

FX E-COMMERCE AND PLATFORMS52. Taking cost and complexity out of post-trade FX operations Regulatory requirements are adding further cost and complexity to the FX back office so Frances Faulds reports on how the FIX Working Group and two of the industry’s leading technology providers are helping market participants to address the issues.

60. Survival of the Fittest - what’s coming next in the evolution of FX ECNs?Electronic communication networks may be in the FX market sweet spot right now but Richard Willshire sets out to discover whether they can all survive.

THE e-FOREX INTERVIEW 72. Bloomberg - offering access to the global FX communitye-Forex talks to Tod Van Name, Global Business Manager for FX and Commodity Electronic Trading at Bloomberg LP.

Marshall BaileyForeword

The ELAC Portal

William EssexCryptocurrencies

Bitcoin versus block-chain

Tod Van Name The e-Forex Interview

Bloomberg LP

Francis FauldsLiquidity Aggregation Technology raising bar

Dan BarnesManaged Connectivity Emerging Market FX

Bryan Seegers Leader

The SNB event

Richard WillshireEvolution of ECNs

Survival of the fittest

Nicholas Pratt Special Report

Institutional FX Desks

Heather McLeanRisk Management

A centralised approach

Romael KaramTradertalk

Harmonic Capital

004 006 Contents.indd 1 10/06/2015 14:31

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REGIONAL e-FX PERSPECTIVE80. The Middle EastRichard Willsher investigates what factors are shaping the foreign exchange market across the Middle East and what growth in e-FX we can expect to see taking place throughout the region.

SPECIAL REPORT98. Filtering out the noise: Institutional FX desks move e-dealing and market intelligence onto a new level Nicholas Pratt examines ways in which leading institutional FX brokers are leveraging their e-dealing platforms and market intelligence services to meet the needs of clients.

TECHNOLOGY110. Are you looking for smarter and faster FX Liquidity aggregation?Technology is raising the bar in terms of smarter ways to aggregate connections to the large number of trade venues in the FX market. Frances Faulds talks to three leading providers to see what solutions are available.

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A ACI page 32ADS Securities page 2 and 3Advanced Markets page 129Aite Group page 66Aphelion page 13Avelacom page 141

B Bats Global page 60BBVA page 21Bloomberg LLC page 72Bloomberg Tradebook page 11Broadridge page 133BT page 143 C CFH Clearing page 69Chapdelaine FX page 109

FXSpotStream page 5 G Gain GTX page 67Gold-i page 136

H Harmonic Capital page 148 I Intergral page 10INTL FCStone page 105IS Prime page 91ITG page 14 J JFD Brokers page 124

R R5 page 87

S Saxo Bank page 20smartTrade Technologies page 41Squared Financial page 107Sucden Financial page 96Swissquote Bank pages 8 & 9

T 360T page 82Thomson Reuters page 83Tradair page 115TraderTools page 113TradeTools Fx page 131

Citi page 80Currenex page 63

D Devexperts page 125Divisa Capital page 61

E EBS Brokertec page 19Eurobase page 59 F FCM360 pages 30 & 31Finotec page 103FlexTrade page 82FXecosystem page 147FXone Inside Back CoverFxPro Inside Front Cover

L Liquidity Pool page 70LMAX Exchange page 7Lucera page 145

M MetaQuotes Software page 17

N NBAD page 82Nordea page 37 O One Zero page 127

P Par FX Outside Back CoverPFSOFT page 25Philip Futures page 15

The evolution of FX ECNs

Retail brokerage risk management

Reducing costs in Post Trade FX

FX BROKERAGE OPERATIONS122. Taking a more centralised approach to risk management in retail FX brokerage activitiesHeather McLean discovers why it is now more important than ever for brokers to improve control of trading systems and better analyse, manage and hedge customer order flows.

NETWORKS, HOSTING & CONNECTIVITY 138. Managed connectivity - the better way to access Emerging Market FXDan Barnes reports on how market volatility has made flexibility and control of connectivity key for FX trading firms looking to access and leverage opportunities in emerging markets.

TRADERTALK148. Harmonic Capital Partners – A focus on investment strategy diversificatione-Forex talks with Romael Karam, Partner at Harmonic Capital Partners LLP an independent quantitative macro manager.

004 006 Contents.indd 2 15/06/2015 09:07

LMAX PrimeSM is a single Prime Brokerage account, with bespoke accessto LMAX Exchange, top-tier global banks and selected ECN liquidity.

LMAXPrimeSM

business benefits

› Credit intermediation with bespoke multiple venue liquidity

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› Ultra-low latency client connectivity (via FIX API)

› Real-time reporting and reconciliation GUI

› Centralised risk and collateral management

› Proprietary, award-winning trading technology

LMAX Exchange sales: +44 20 3192 2555 | [email protected] | www.LMAX.com

A turnkey, cost-effective & flexible, Prime OF Prime solution

FX and CFDs are leveraged products that can result in losses exceeding your deposit. They are not suitable for everyone so please ensure you fully understandthe risks involved.

The information in this advertisement is not directed at residents of the United States of America, Australia (we will only deal with Australian clients who are “wholesale clients” as defined under the Corporations Act 2001), Canada (although we may deal with Canadian residents who meet the “Permitted Client” criteria), Singapore or any other jurisdiction where FX trading and/or CFD trading is restricted or prohibited by local laws or regulations.

*LMAX Limited operates a multilateral trading facility. LMAX Limited is authorised and regulated by the Financial Conduct Authority (registration number 509778)and is a company registered in England and Wales (number 6505809). Our registered address is Yellow Building, 1A Nicholas Road, London, W11 4AN.

Incorporating no ‘last look’ liquidity withpricing from top-tier global banks and ECNs...

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EForexJuly2015_Layout 1 19/05/2015 11:06 Page 1

LMAX Ad.indd 1 02/06/2015 09:49

Swissquote Bank Ltd (“Swissquote”) is a bank licensed in Switzerland under the supervision of the Swiss Financial Market Supervisory Authority (FINMA). The support on which this advertisement is published (such as a newspaper or a magazine) might incidentally be distributed in the USA. Swissquote is not authorized as a bank or broker by any US authority (such as the CFTC or the SEC). The products and services presented in this advertisement are in particular not intended to US persons (such as US citizens, US residents or US entities organized or incorporated under the laws of the USA). This advertisement does not constitute an offer, a solicitation or an invitation to US Persons to purchase or sell any banking or financial products or use any banking or fi nancial services. Swissquote does not open any account for US persons. The products and services presented in this advertisement are as a general rule authorized for sale in Switzerland

only. They are not intended for any person/s who, based on their nationality, place of business, domicile or for any other reasons, is/are subject to legal provisions which prohibit foreign fi nancial services providers from engaging in business activities in these jurisdictions, or which prohibit or restrict legal entities or natural persons from accessing websites of foreign fi nancial services providers. FX Transactions with leverage are highly speculative. Trading FX bears high riskand might lead to the loss of your entire deposit. You should carry out FX transactions only if you understand the nature of such FX transactions and the extent of your exposure to risk, and if such FX transactions are suitable for you in light of your circumstances and fi nancial resources. Swissquote neither assesses the suitability of FX transactions nor does it provide investment advice. No information provided by Swissquote must be considered as an offer or a piece of advice.

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Security and Speed. No compromises.

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MANCHESTER UNITED GLOBAL PARTNER

Swissquote Double Page Ad.indd 1 02/06/2015 09:49

Swissquote Bank Ltd (“Swissquote”) is a bank licensed in Switzerland under the supervision of the Swiss Financial Market Supervisory Authority (FINMA). The support on which this advertisement is published (such as a newspaper or a magazine) might incidentally be distributed in the USA. Swissquote is not authorized as a bank or broker by any US authority (such as the CFTC or the SEC). The products and services presented in this advertisement are in particular not intended to US persons (such as US citizens, US residents or US entities organized or incorporated under the laws of the USA). This advertisement does not constitute an offer, a solicitation or an invitation to US Persons to purchase or sell any banking or financial products or use any banking or fi nancial services. Swissquote does not open any account for US persons. The products and services presented in this advertisement are as a general rule authorized for sale in Switzerland

only. They are not intended for any person/s who, based on their nationality, place of business, domicile or for any other reasons, is/are subject to legal provisions which prohibit foreign fi nancial services providers from engaging in business activities in these jurisdictions, or which prohibit or restrict legal entities or natural persons from accessing websites of foreign fi nancial services providers. FX Transactions with leverage are highly speculative. Trading FX bears high riskand might lead to the loss of your entire deposit. You should carry out FX transactions only if you understand the nature of such FX transactions and the extent of your exposure to risk, and if such FX transactions are suitable for you in light of your circumstances and fi nancial resources. Swissquote neither assesses the suitability of FX transactions nor does it provide investment advice. No information provided by Swissquote must be considered as an offer or a piece of advice.

touch & trade forexAdvanced Trader Mobile 3.1

Security and Speed. No compromises.

www.swissquote.com/fx

*for touch Id enabled devices

MANCHESTER UNITED GLOBAL PARTNER

Swissquote Double Page Ad.indd 2 02/06/2015 09:49

Integral Development Corporation has announced the public availability of OCX™, the Open Currency Exchange™. OCX offers unlimited screen trading for a monthly subscription and its advanced matching engine combines liquidity directly from disclosed bilateral relationships, liquidity indirectly from over 100 electronic market makers and resting liquidity from a central limit order book into a consolidated execution venue.

Harpal Sandhu, CEO, Integral Development Corp states that: “Integral pioneered the use of aggregation in disclosed liquidity. Now, with the addition of indirect liquidity and resting orders within the same matching engine, the best of all electronic trading models is just a click away. Combined with subscription-based pricing, users worldwide now have the most powerful and cost-efficient solution available.”

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Integral launches subscription-based FX exchange

Nordea sees demand for specialist liquidity provider

LMAX Exchange widens distribution of TY3 liquidity

Harpal Sandhu

Thomas Morten Jensen

Andreas Wigstrom

Nordea, Scandinavia’s largest bank, report an increased interest from market participants to add a regional specialist liquidity provider for electronic trading in the Scandinavian currency pairs. Following the fallout of the SNB event in January and the subsequent market volatility the importance of a mature and stable trading counterparty has resurfaced. Nordea has a unique position in Scandinavia with a strong corporate franchise and a natural regional flow.

Thomas Morten Jensen, Chief Sales Manager, Nordea Markets explain: “We have experienced increased interest

LMAX Exchange has widened the distribution of liquidity from its Tokyo-based matching engine via PrimeXM. Through the use of PrimeXM’s hosting framework, clients are able to access the no ‘Last Look’ liquidity from LMAX Exchange at ultra-low latency.

Andreas Wigstrom, Head of International Development at LMAX Exchange, added: “Institutional traders in Asia Pacific are an important growth segment for us, and we are excited to offer them exchange quality execution and access to

from International clients, ranging from corporates to asset managers and hedge funds to regional banks. They are looking to add a regional specialist liquidity provider to ensure they have the right mix in their liquidity pools, also under volatile market conditions”.

our streaming, firm limit order liquidity from top tier banks and financial institutions, via PrimeXM’s leading technology and dedicated infrastructure in TY3.”

News.indd 1 10/06/2015 14:28 Bloomberg Tradebook Ad.indd 1 13/03/2015 12:50

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Hotspot introduces standards for Liquidity providers

Bill Goodbody

Hotspot has announced new standards for Hotspot liquidity providers that qualify as Market Makers, including reduced time-frames for acting on Non-Firm Liquidity and high targeted acceptance rates for such orders.

The Hotspot market provides participants with access to a unique combination of “Firm Liquidity” and “Non-Firm Liquidity.” Firm Liquidity and orders can be provided by all Hotspot market participants, including approved Market

Makers, while Non-Firm Liquidity can only be provided by approved Market Makers. Hotspot also offers participants a choice with regard to accessing Non-Firm Liquidity, including a choice of Market Makers with whom to interact.

“We are constantly striving to ensure our customers experience the highest level of fulfillment and market quality on Hotspot. We believe that these new Market Maker standards will further increase fill rates and

enhance market quality, creating an even more robust experience for our customers,” said Bill Goodbody, Jr., Senior Vice President, Foreign Exchange at BATS.

Thomson Reuters has announced a number of key enhancements to its bank-to-customer e-commerce platform, Electronic Trading, to enrich liquidity, reduce latency and improve customer experience. The new enhancements see liquidity from Thomson Reuters multi-bank platform FXall integrated into Electronic Trading for the first time.

Key improvements have also been made to the performance of Electronic Trading’s core pricing engine that reduce latency on the platform. Extra auto execution and smart order routing methods have been added to the platform, improving both pricing accuracy and enabling trade execution

Thomson Reuters enhances its White-Label FX solution

New latency report system

with minimal market impact. In addition, Thomson Reuters has significantly redesigned the user interface to enhance customer experience and support increased brand flexibility.

News.indd 2 10/06/2015 14:29 Aphelion Ad.indd 1 16/03/2015 17:32

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CFH Systems has formed a joint venture with Capital Market Automation Provider Ltd to accelerate market penetration in China.

Ole Rossing, CIO, CFH Systems explains, “We are all aware of the huge potential in China. However, we knew that to capitalise on the opportunities available, we needed to find a local partner with strong local knowledge and excellent

CFH Systems opens Joint Venture in China

Ole Rossing

ITG launches ITG Analytics IncubatorITG has announced the launch of ITG Analytics Incubator, a digital community for the sharing of ideas and collaboration in trading and portfolio analytics. ITG Analytics Incubator is home to several mobile and prototype analytic applications, data sets for upstream applications, and a library of educational content ranging from short video clips to journal-published white papers.

“ITG Analytics Incubator is an important step toward the concept of free, open analytics in the industry,” said Ian Domowitz, Managing Director and Head of Analytics at ITG. “We are breaking down the barriers between the public and our analytical innovations. ITG

Analytics Incubator is designed to give early access to the ideas and projects currently in development while building a community of users to share and engage with prototype applications, data, and our original content.” Apps available on the Incubator include the ITG FX Trading Cost Index App.

infrastructure. Capital Market Automation Provider Ltd was ideal, with a strong track record and a reliable local network already in place. It is present in two datacentres in Hong Kong and three China datacentres. This local network, combined with our own dedicated fibres between London and Beijing, puts us in a strong position to become a market leader in terms of technology, hosting and infrastructure solutions

for institutional clients across China.”

Ian Domowitz

FXSpotStream adds Standard Chartered Standard Chartered has joined FXSpotStream as a new liquidity providing bank and adds to the liquidity available from FXSpotStream’s existing liquidity providers. Alan F. Schwarz, CEO, stated: “We have had a great start this year with double digit year on year Q1 client and volume growth. The addition of Standard Chartered following Credit Suisse’s joining in March continues our rapid expansion in all aspects of the business. Our relationship with Standard Chartered will serve FXSpotStream and its clients well as we continue to expand our client base and increase trading volumes in the Asia-Pacific region.” (See more on page 92)

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smartTrade Technologies selected by LCG

Gold-i partners with Confisio

David Vincent

Tom Higgins

smartTrade Technologies has been selected by London Capital Group to deliver a fully automated and hosted FX trading platform.

“We have deployed our proven LiquidityFX solution in our private cloud in record time so that LCG is able to provide the best prices and trading experience to its clients across devices, including mobile. The rich functionalities of our platform guarantee that LCG maintains its sustainable business model. Our internalisation component also brings enormous cost efficiencies” said David Vincent, CEO of smartTrade Technologies. LCG is leveraging smartTrade’s technology for

Gold-i is launching a Regulatory Reporting tool for MT4 brokers, thanks to a partnership with Confisio, a provider of regulatory, compliance and operational solutions for the financial services industry. Gold-i Reg Reporting, aimed at brokers of all sizes, provides a fully automated, cost-effective, end-to-end real time solution. Whilst the initial focus is on EMIR reporting, Confisio’s products and services also deal with post-trade processing and reporting in every jurisdiction in the world. With this newly launched service, Gold-i clients can now meet all their legal reporting requirements through a single interface.

Order Management, Smart Order Routing, Quoting, enhanced Order Execution, Risk Management, Post Trade and MT4 integration. LCG has direct access to a large list of Liquidity Providers and ECNs allowing them to benefit from highly competitive spreads.

Tom Higgins, CEO of Gold-i comments, “EMIR reporting is complex and can be very time consuming. We recognised the need to help our clients to find a simple, lean and automated means of meeting their regulatory obligations and are delighted to partner with Confisio to launch our new service.”

Protrader now supports Spread BettingPFSOFT has announced the extending of their Protrader trading platform’s functionality with a new set of features.

The new update enables Spread Betting in addition to Forex, CFDs, Stocks, Options and Futures trading. These allow PFSOFT to fit Protrader functionality to the local specificity of the UK financial market. “Working closely with

our partners we were able to create a more efficient and valuable trading platform for our clients” - said Roman Nalivayko, Global Head of Business Development at PFSOFT - “Customization of service in addition to a flexible platform architecture makes our offering an alternative to in-house development but with shorter time to market and more cost efficiency”.

News.indd 4 15/06/2015 09:13 Metaquotes Ad.indd 1 13/03/2015 12:51

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FXecosystem, a leading provider of outsourced connectivity services, is celebrating its fifth anniversary this month.

James Banister, CEO, FXecosystem comments, “Over the last five years we have really carved a niche for ourselves as the only outsourced connectivity company to focus exclusively on the FX market. I took control of the business two years ago and since then we have seen substantial growth from both institutional and retail clients. We have made significant investment in our infrastructure so that our clients - global FX banks, financial institutions, fund managers and brokers – can all reap the benefits from enhanced connectivity and operational efficiencies. We have exciting plans in place for our next growth phase, including extending our geographical reach and broadening our product portfolio. We will be announcing our new, real-time monitoring product launching in the near future.”

FXecosystem celebrates five years in business

Sucden canvasses views post SNB

TraderTools fills FX Liquidity gap with alternative sources

Peter Brooks

For the third consecutive year, Sucden Financial Limited has been named Best STP FX Liquidity Provider in Western Europe in the Global Banking & Finance Review Awards.

Peter Brooks, Co-Head of e-FX at Sucden Financial comments, “Our bespoke solutions, tight spreads, deep pools of liquidity and 100% STP model continue to be an award-winning combination for our clients who value our FX and bullion liquidity.” Brooks highlights that Sucden Financial excels in this market because they listen to feedback from clients and prospects in order to evolve their offering. As such, Sucden Financial is appealing to banks

To address the liquidity gap caused by the more conservative measures adopted by the banks and more restrictive credit

and brokers from across the globe to take part in a short survey to provide insight into how priorities for selecting a liquidity provider have changed since SNB events. Turn to page 96 for details. If you fill in your contact details at the end of the survey, you will be entered into a prize draw for a chance to win an iPad Air 2.

conditions, TraderTools is at the forefront of integrating alternative liquidity providers (ALPs) into the FX trading arena.

“Today, 75% of all FX trading is electronic, with ALPs supplying approximately half the liquidity. As core pricing becomes more algorithmic, we maintain that customer spreads are still based on relationships,” said CEO Yaacov Heidingsfeld. “By providing traditional and Yaacov Heidingsfeld

alternative liquidity providers with true relationship pricing and both price and execution aggregation, we are helping to fill the FX liquidity gap.” TraderTools is integrated with leading ALPs and brokers with access to unique customer flow liquidity.

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Saxo Bank launches SaxoTraderGO

Squared Financial launches new MT4 MAM technology

Saxo Bank has launched SaxoTraderGO, a new, intuitive multi-asset trading platform, available on desktop and mobile devices. The development of the platform also reflects one key trend: 20 per cent of the bank’s overall retail trading takes place through mobile devices, and this new platform allows them to access trading opportunities

seamlessly as they switch between mobile and desktop environments.

“The platform was developed in HTML5 and built on top of a new open API. So it’s true, SaxoTraderGO was built from the ground but we didn’t start from scratch. Saxo had a solid multi-asset trading

Squared Financial Services Limited has announced the launch of advanced MT4 Multi Account Manager (‘MAM’) technology and online onboarding for investors and professional portfolio managers.This new infrastructure provides rapid multi account setup, and an easy-to-use interface with advanced functionality and low latency execution.MAM technology offers a number of benefits that make it a powerful tool:

Youssef Barakat

and portfolio managers with the essential integrated software tools to quickly and conveniently allocate and manage funds under a master account arrangement in live trading conditions.”

engine and a great content and social trading site that is developed on top of our open API. Our focus was on usability and the result is a platform that supports a seamless user journey between Web, tablet and mobile devices,” Christian Lund Hammer, Head of Platform Development told e-Forex.

• Flexible allocation rules• Stand-alone client application• Reporting and commission

calculation tools• Compatible with EA and

mobile• Robust high capacity sub-

account structure• Simple and user friendly

setup

The Company’s CEO, Youssef Barakat commented that, “Our new advanced technology will provide professional traders

News.indd 6 12/06/2015 10:06

FX trading just became easier

BBVA has launched a new FX platform for institutions and corporates with a powerful yet easy to use web interface. You can use it to complete FX transactions via the internet with real-time streaming of prices directly from our global markets dealing floor.

Everyone can now trade currencies in a simple, rapid and secure manner, with the backing of a renowned global banking group.

BBVA, as close as you need, as far as you go

https://[email protected]

AF Prensa Plataforma eMarkets 176x231.indd 1 29/05/15 10:05BBVA Ad.indd 1 02/06/2015 09:50

With standing room only for the speech of Finance Minister Joaquim Levy, who stressed government’s commitment to ensuring fiscal stability amid what he called a “period of economic adjustment” as Brazil copes with a “temporary” economic slowdown. Acknowledging Brazil’s need to address its debt burden and contain inflation, he nonetheless pitched to the assembled investors to invest in Brazil’s huge infrastructure program.

Comparing emerging markets, India came off favourably versus Brazil, with panellists endorsing the Modi government’s reform programme as far outstripping that of the Rousseff administration, despite Finance

By Eva George, R5

Minister Levy’s commitment to fiscal discipline at the start of the day. However, differences aside, panellists noted the significant increase in demand for currency hedging for emerging market currencies such as BRL, INR and CNY, particularly in relation to ETF exposure in these currencies. With further volatility expected, demand for hedging of currency risk via the offshore NDF market is likely to grow.

Many discussants regarded recent rallies across the emerging markets as driven by US liquidity not economic fundamentals; while Brazil and its peers are well prepared for a Fed rate hike, the effect on Brazil’s domestic economy will be challenging in spite of relatively high interest rates set

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Sao Paulo comes to St Pauls


All eyes were on Brazil for the first Brazil Capital Markets Day in London last month.

by the central bank.

Several panellists argued Finance Minister Levy’s new economic policy is too limited to address major structural issues such as labour market dynamics, questioned the assertion that inflation will fall back to 5%, and regarded Levy’s fiscal policy as simply pushing expenditures and the task of controlling inflation into 2016. Major reforms might well have to wait for the next government, diminishing Brazil’s short term growth prospects, while depreciation is likely, with a major impact on the carry trade and the large stock of debt maturing this year. Uncertain Chinese growth prospects also present a major challenge to Brazil, which depends heavily on China for exports.

Brazil Capital Markets Day Paternoster Square, St Pauls London May 13th

022-024 Recent Events.indd 1 10/06/2015 14:34

The question of whether the IDR is out of the fragile five comes with an eyebrow lift when some of the new government’s changes are bought into view. 40% of the countries trade is with other ASEAN nations.

A further 15% with China, and 10% UK, leaving only 11% with the US. Leaving it slightly less vulnerable to Taper Tantrum than last year.

It’s NDF trades close to the onshore rate and whilst the economy is not near to internationalization in the same way that China is – due to its low reserves and lesser financial experience when compared to the likes of Singapore or Hong

By Jon Vollemaere, R5

Kong. It is taking some steps to deepen its financial markets.

The government has passed laws requiring onshore firms to hedge their currency risks - a boost to the local banking sector but also a way to increase IDR liquidity whilst also combating some unintended currency corruption. Which goes something like this.

Indonesian factory owner exports his products overseas – takes the hard currency receipts into his bank account in Singapore and once a month pops up for a shopping trip coming home with a suitcase containing USD $9,999 worth of IDR to pay his factory workers.

Jakarta is Hot and has a lot of Traffic Lord Mayor of London delegation to the Indonesia Central Bank & Finance Ministry Jakarta May 20th

“Jakarta is hot and has a lot of traffic” – such was a comment from the Finance Ministry when compared to the City of London on the Lord Mayor’s recent trip in May.

“ We’re not encouraging them – we’re enforcing them” says Perry Warjiyo, Deputy Governor of Bank Indonesia.

This new local currency hedging is an interesting move when you think what creates liquidity in a currency pair?

Certainly more trading/hedging by more participants – particularly when it’s a regulation - creates new liquidity, and a deeper IDR market benefits both the user and the economy as a whole - especially when it comes to smoother moves versus jumpy thin liquidity spikes.

july 2015 e-FOREX | 23

Photograph: AsiaTravel / Shutterstock.com


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Its relaxed atmosphere and associated fun seems to lead to more business and networking getting done at this event.

This year some big banks and brokers who had previously attended were notable by their absence but there was no shortage of companies taking up the slack. Traffic for brokers like Fortress Prime, FXPrimus, Swissquote, Hello Markets, ICM Capital, LMAX, Saxo bank, ADS Securities and Sucden appeared to be brisk and with new brokerages being set up there was a constant talk about demand for better liquidity. A slew of new payment providers also appeared. Tradesocio and Ayondo were showing off their

Article and photography: Larry Levy. Photography sponsored by CFH Group.

iFX Expo Cyprus, May 2015

The iFX Expo Cyprus is one of the most important B2B iFX exhibitions held for FX brokers, technology providers, and other service vendors and consultants to the retail FX industry.

social networking products whilst technology providers such as Devexperts, Fixnetix, Panda, Gold-i, Market Technologies and STAR Financial Systems all appeared busy. There was also a broad selection of binary options solutions on display.

The Swissquote team included Marc Bürki, (CEO) who was one of the people on the panel speaking about the SNB crisis. Marc drew attention to the way the announcement was handled and the need for sufficient capital reserves at brokerages to deal with such events.

This particular show was one of the better ones in terms of delegate numbers and sheer

buzz, in spite or partly perhaps because of the aftermath of the SNB event in January. On some level the reality check of the “slow moving train wreck” (as Harpal Sandhu, CEO of Integral described the after effect of SNB) has invigorated people to double down and try harder.


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PF Soft Ad.indd 1 09/06/2015 10:02

Malaysia implemented a GST policy in April and infl ation fi gures last week captured the full effect of this GST policy. In the midst of a slightly higher oil price and the addition 6% GST, we see infl ation move up to 1.8%, which is below expectations of 2.2%. Considering that oil prices have yet to move up fully, Malaysia’s infl ation remains in the safe range. Even if oil prices do move back up, we believe that it should still allow Malaysia’s

May and June saw numerous “emergency summit” on the Greek topic. One more time, the talks were focused on unlocking €7.2bn in bailout funds under more austerity conditions. Following this last-chance summit, Greece has proposed to its creditors a 47-page proposal in which the Greek government declared that compromises have been made. Greece also added pressure by saying it would not

By Daniel Ang, investment analyst at Phillip Futures

Yann Quelenn is a Market Strategist at Swissquote

infl ation to average at a healthy 3-4% towards the end of the year. This is because Malaysia’s

fulfi l next IMF payment case there were no deal by Friday the 5th of June. However, cunningly Greece decided, under a specifi c rule, to gather several small payments in a larger one, and thus to delay its installments to the end of June. We do not think that unlocking funds again and again is a sustainable solution over the long run. It is worth adding

defl ation coming from the fall in oil prices has amounted to about 3% (July’14 - Feb’15). If

that Greece must also pay almost €7bn to the ECB in July and August, major instalments being the 20th of July. In our opinion, a Greek default would not necessarily mean an exit from the Eurozone, but will alter considerably the ECB’s strategy to support Greek banks. Greece’s offi cials seem to be gaining time as the current compromises are too demanding. The pressure on Greek pensions and on public domestic wages are now at a climax. Politically, Syriza has pressure by saying it would not

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BRIEF NEWS AND ANALYSIS FROM AROUND THE WORLD OF FX

Malaysia’s infl ation under control

How much will the ECB and the IMF compromise?

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this happens even in the 3Q of 2015, we highly doubt average 2015 infl ation would be too high. What we believe this means is that the Bank Negara Malaysia (BNM) would likely keep interest rates unaltered. The fear of over infl ation should dissipate with low infl ation in April. As a result of this, the Malaysian Ringgit (MYR) should have opportunities to strengthen moving forward. The low Malaysia infl ation has primarily kept the USD/MYR from reaching back to the 6 year high of 3.72. With

been elected under the promise of stopping austerity but agreed nonetheless in reforming pensions and the value added tax system. Greece is on its way out and the sooner the cheaper. ECB, to save its credibility is now disposed of compromising on the 4.5% budget surplus for

the recent strengthening of the dollar, the USD/MYR could have easily test this resistance again. Although we could see oil prices start to increase as we move through the year, we believe this MYR strength would be kept as there is some buffer for Malaysia’s infl ation to move upwards. We believe that the 6 year high of 3.72 could be tested again, however, not from a weakening MYR but rather from a strong US Dollar (USD). On a separate note, we are seeing a stable International Reserves of USD106.2b (as at 15 May 2015) as released from BNM. Although the reserves

2015 and 2016. On its side, Greece reduces regularly what primary surplus it can offer for this year. Promises only bind those who believe in them. The lack of volatility in EUR and peripheral bond yields indicated the markets are anticipating a short-term patch to give policy

have dropped substantially compared to last year, we see this stability as an indication of an improving fi nancial condition. This bodes well for the Malaysian economy and if reserves increase, we expect more confi dence to return.

makers more time to hope for economic miracles. Yet, even if a deal is struck for “more cash for less reforms”, due to the massive debt burden it’s only a matter of time before Greece is back asking for more economic support.


CURRENCY CLIPS

Daniel Ang

Yann Quelenn


Over the past 3 months, we’ve seen LATAM currencies perform well, especially the BRL which recovered 10% during the course of April.

Of course, we have to split the more generic factors from the country specifi c ones. When the good times are rolling globally and money is plentiful, then domestic fundamentals tend to be overlooked. When the tide starts to go out then things are different and a currencies beta

After the most uncertain election for a long time the UK decided to stay with a Conservative government which was a positive factor for GBP across the board. Trading of Cable in the MENA region reached record levels and the pair is still attracting strong fl ows. However, there are risks involved in the coming weeks and months, which may change the current neutral outlook to positive. The fi rst is the Federal Reserve’s policy and the second

By Simon Smith, Chief Economist at FxPro

to domestic factors tends to increase as a result.

If we look at the respective domestic forces right now, then there is a fairly wide split and this has already been evident in the price action of recent weeks. I wrote last year regarding the Brazilian Real and how it had fallen out of the now tired BRICs acronym (Brazil, Russia, India & China), on the back of slowing economy and growing structural issues after years of

lagging investment, amongst other things. The backdrop of a stalled economy and continued high infl ation is likely to see the currency underperform in the second half of the year. The 3.80 – 4.00 range looks likely for USDBRL by the end of the year, with rate cuts doing little to stem currency depreciation.

On the other side of the LATAM currencies basket is the Mexican peso, where growth is more solid, infl ation lower and the structural issues being faced are less acute than for Brazil. Despite the months of preparing the world for the eventual Fed tightening, it’s diffi cult to see

Reserve’s policy and the second

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The LATAM split

Middle East Currency Update

is the UK’s referendum over its EU membership.

The Federal Reserve promised back in October of last year that

By Noureldeen Al Hammoury, Chief Market Strategist at ADS Securities


EM currencies outperforming the dollar as this nears, but Mexico should manage to hold its ground against most others in LATAM, with a move towards the 18.0 level likely by year end.

rates will start rising in June of 2015. Since then traders across the Middle East have followed the global trend, buying into the US dollar, which contributed to the GBP declining more than 10% since the Fed ended QE. But, we have always had concerns over the timing of the rate hike as most of the US economic releases so far this year have come in lower than expected. This view is shared by some elements of the market which has caused a short squeeze on GBPUSD. If the US rate hike is delayed for another quarter or two this could lead to a notable adjustment in the FX market. Most players have

The other currency worth watching is the Chilean peso. The recent decline in copper prices has exacerbated the weakening of the currency seen during most of May, with

already priced in the rate hike, so we need to look at how this would unwind if the Federal Reserve really feels that the required economic conditions for a hike have not been met.

The Conservative party is still planning to hold a referendum about the UK’s membership in the European Union. Holding the referendum would be a negative factor for GBP, but if the result is for the UK to stay in the European Union, we could have a broader stabilization in GBP across the board and the speculation will shift to when the BOE is going to go for a rate hike.

USDCLP moving above the 620 level in early June. Chile’s reliance on China as a trading partner also makes for a more cautious outlook, especially given what we are seeing in the stock market.

The current interest in the GBP across the Middle East has led to record regional trading volumes. Alongside sterling, the euro and yen and still gaining interest with many investors also looking at the RMB.


CURRENCY CLIPS

Simon Smith

Noureldeen Al Hammoury


FCM360 Ad.indd 1 15/06/2015 08:55 FCM360 Ad.indd 2 15/06/2015 08:55

The ACI Financial Markets Association (ACI FMA) is focused on providing helpful outcomes on the future direction of the regulation of conduct oversight and education in the wholesale markets industry. In response to the FEMR Consultation under the Bank of England, the ACI and its many international members have received the endorsement to our Model Code from many large UK-based institutions, the European Central Bank’s FX Contact Group, the Reserve Bank of Australia’s FX Committee, and elsewhere. In fact, Code of conduct compliance is an FSB requirement! The ACI FMA has

devised the e-Learning and Certification Portal to provide a way of helping bank deal with the plethora of conduct issues. Our work is having European-wide, but also global influence and impact. There is indeed tremendous value in ACI FMA’s articulated strategy of building a relevant educational and certification tool for global distribution.

As such, I welcome the opportunity to discuss this in person, and review how we might be able to help you prepare for the future.

We have provided a brief update on the progress we have

made to some of the new Single Code leadership, and the FEMR team at the Bank of England. We are making preparations for partnering with the major market players on conduct after the release of the FEMR report, which is out by the time you read this. We hope that you are encouraged by the following information:

1) The ELAC portal is being deployed to early adopters and market participants of an industry seeking a mutual code adherence tool. I am proud that we have taken the responsible decision to make conduct training and adherence accessible, and to have provided

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A open letter to e-Forex readers


Dear Reader, since my last contribution to this magazine I am pleased to report that we have made some unbelievably positive progress in our effort to help the markets industry on ethical conduct.

By Marshall Bailey, CFA , President, ACI Financial Markets Association International

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leadership and opportunity for this to take place in short order. We have now demonstrated the ELAC Portal to nearly 90 institutions, and overwhelming response has been one of support and interest. We even have our first “clients”, including two central banks, with many new subscribers in the wings. There are many more yet to come. Your Markets team would be welcome leaders/early adopters in this.

2) The Portal has been designed to be entirely “code agnostic”, meaning that while the current content is based largely on the international ACI Model Code, it is flexible in format and design to enable its applicability to any code. This means that individual banks can use this tool for their private corporate benefit.

More interestingly, the Portal is readily adaptable and designed to facilitate the inputs from any source. The means that the work emerging from FEMR and the BIS Single Code process can be ported onto the tool.

We can provide this as a substantial mechanism to rapidly deploy conduct training to all users. Further, it can be used to enhance the market’s ability to teach, test, reinforce and monitor knowledge of codes of conduct. We could potentially be used across other subjects too, but this is not our goal now.

3) The success of this effort will be determined by market participants understanding of the importance of such work. As the broad array of FEMR work becomes embedded in practice in the UK, critical areas such as conduct and

adherence can be rapidly expanded globally via the internationally nature of the ELAC Portal. This adds value to your work through rapid delivery. Our decision to focus our efforts in ways that support this fundamental theme of market best practice and ethical behaviour remains at the heart of the ACI FMA’s mission, but more importantly, is enabling leadership in this area for us all.

We can, as you rightly say, help save the industry and all participants a huge wasted effort by joining forces on this, getting it right, and deploying a common platform. The sooner, the better (cheaper, more efficient, more effective) for everyone.

Frankly speaking, we are finding a lot of support for the manner in which we are helping banks to save money, redefine the conduct training along industry lines, and having you at the table would be mutually beneficial.

Can we arrange to meet with your

relevant people on this subject, please?

By reviewing and supporting the ACI ELAC Portal, you give yourself and your organisation a head-start in mitigating conduct risks via education and attestation, and provides a strong ethical platform upon which you can move forward with your businesses. I can provide far more detail in person.

Yours faithfullyMarshwww.acifma.com


FOREWORD

The ELAC Portal

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It is now clear that the effects of the SNB in January 2015 have reverberated through the FX market and the final result is still unknown. When speaking to colleagues in the industry many agree that these ‘changes’ were going to come anyway, and were just accelerated by the violent move in the market which was so negative for a large number of firms.

The one thing for certain is that the overall market landscape is changing with risk, liquidity and regulation being at the forefront. The real test for the next year will be how firms adapt to these changes and if they have the ability and balance sheet to do so.

MANAGING RISKFollowing the SNB de-peg I believe the first hot topic for all market makers and brokerages

running a risk book was risk management. Obviously there are many forms of risk to consider but for brokers it was how you were able to handle the massive inflow of CHF while your providers were pulling away. Did you run a ‘yes machine’ and fill all the clients at their price, on your book? Did you go straight to the market (STP) at which point your clients experience, and your hedge book, were totally reliant on your providers? Or were your systems more resilient and you had some type of logic in place and could run a ‘hybrid’ model?

There is no easy answer to this and each broker has a different appetite and approach to risk. For many, the easy answer was to STP everything and make there mark-up. In normal markets this is a fantastic low

risk model but during volatility you are truly at the mercy of the market. Others took the polar opposite and booked all client flow with minimal risk tools. Others were fortunate enough to have invested in a hybrid model where they had the ability to be more flexible with how they managed their book.

Unfortunately for many brokers, the cost of investing in flexibility is expensive and was out of reach. I think the future priorities in flexibility will become paramount for brokers and if they are not able to make in-house investments they will be forced to outsource. At ADS from inception we have put a significant amount of effort and resource into technology giving us the ability to manage the SNB move in an orderly fashion with minimal disruption to our clients or providers.

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Six months on –what has been the real impact of the SNB event?


Bryan Seegers, Head of eFX and Pricing, ADS Securities looks at the wider implications of the Swiss National Bank (SNB) removing its trading floor of 1.20 franc per euro and how the industry is adapting to the longer term issues accelerated by the Swiss National Bank (SNB) actions.

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LEADER

ACCESSING LIQUIDITY For over a year, and long before the SNB intervention, I had been making the case that the FX liquidity landscape is changing. The events of Thursday 15th January may have been a turning point, the catalyst, but the underlying issues were already there.

When accessing liquidity relationships are now more important than ever. An Institution used to have people knocking on their doors to price them, so they could gain market share. But we are now faced with the biggest names in the industry questioning what counterparties they want to face based on ever tightening compliance, strategy realignment and profitability. What the SNB did for many institutions is show them who their ‘real’ partners are.

The relationship between price maker and price taker has become extremely fragile with both sides of the trade are under immense pressure to ‘police’ their business, and at the same time bring in volume and profit per million in line with industry norms.

These price makers now need to justify the value of pricing certain counterparties as Tier 1 providers trading desks scale back on risk due to ever increasing regulation globally including the Volker rule coming into play. This has opened the door for several non-

bank providers to step in to ‘fill the void’.

On a daily basis we are approached by ex-bank quants teams who have started their own shop and are ready to ‘outperform our current LP’s’. Personally I still see significant value from the Tier 1 partners who have supported ADS Securities since its inception and believe they will continue to dominate the space. But, I do see the emergence of a niche space for non-banks which will slowly start to remove this dominance.

While many high level brokers have been able to maintain

stable pricing due to their liquidity management, they are also faced with another looming cloud, the cost of capital and clearing. Over the last few years we have seen a major shift in the Prime Brokerage space. Important contributors like Rabobank and Morgan Stanley have completely shut down their operations, even Citi have begun winding down the less credit intensive side of their offering. While there are still fantastic options available these come at a cost. The top PB’s are no longer interested in a few million dollars on deposit as that doesn’t justify the risk of clearing the flow, and the operational costs that come

When accessing liquidity relationships are now more important than ever

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with running such an operation. These PB’s are now forced to limit their concentration risk to certain types of entities and regions. This has led to increases in margin, increase in fees, reduction of allowed currencies and tenor reduction leaving a fragile community, still recovering from ‘Swiss’ Thursday, in need of a new solution.

So it is no surprise that we are seeing a clear shift into the secondary Prime space known as Prime of Prime (PoP). Brokerages and some institutions recognised

that they now need to access credit through an intermediary, as they do not have the risk profile which will allow a direct approach. An increasing number of players in the market are no longer able to meet the increasing standards of many PB’s. They are being forced to find other ways to participate in the market and still gain access to trading lines. This will be through key players who have the strength to facilitate their business.

The question is who has the technology, know-how and

ambition to get to market and sustain market share in an operationally heavy space. REGULATION This year we have seen many high impact events in the FX marketplace. Some have been caused by straight forward breaking of the rules, such as fixing scandals, others at the mercy of central bank policy changes and some due to looming regulation such as Dodd Frank and capital adequacy changes.

Currently all of the above are being digested and managed by the overall industry to the best of our ability while maintaining a stable growing market.

Regulators are in a very strong position now to determine the future of the FX space. Will they reign in ‘last look’ forcing many providers to become much less competitive in the offering? Will they try to push more business ‘on exchange’? Will they continue to restrict risk taking? Or will a ‘grexit’ once again highlight how fragile liquidity can be when you limit the largest market makers ability to do their jobs?

All of these things lead to one thing and that is change. We will be facing a period of uncertainty and in an evolving and growing market, this requires extremely good processes and discipline.

Six months on – what has been the real impact of the SNB event?

Regulators are in a very strong position now to determine the future of the FX space

034-036 Leader.indd 3 10/06/2015 14:40 Nordea Ad.indd 1 13/03/2015 12:55

We have reached a turning point in the evolution of this article’s subject matter. In early May, Chris Skinner tweeted from the floor of a conference in Asia: “Another banker says Bitcoin bad, block-chain good (yawn).” The banker in question had just made what seems to be the most popular distinction

in fintech today: block-chain, lot of potential; Bitcoin, not so much. Skinner, author of Digital Bank and chairman of the Financial Services Club, hosts on his blog (www.thefinanser.com) a Q&A in which Jeffrey Robinson describes Bitcoin as a “pretend currency” that is “traded as a

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Bitcoin versus block-chain –have we put the cart before the horse?


Whilst it’s true to say that block-chain applications can sometimes be developed without Bitcoin it isn’t always the case. William Essex discusses the implications this has for the role of crypto-currencies in FX.

By William Essex

pretend commodity”. Robinson, author of BitCon: The Naked Truth About Bitcoin, also says: “We need to separate the pretend currency from the block-chain. Every time someone speaks of the technological advancements, the Bitcoin

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efficiencies in the absence of any crypto-currency element. Significantly, while a crypto-currency depends on the widespread distribution of its database, so that no single entity can gain control of its critical sequential calculation, the opposite can be true of a block-chain. Any bank, or other entity, can set up a block-chain for its own purposes, and because it has oversight and control, it can dispense with network distribution (for an FX-desk usage, see the box The undistributed block-chain). A bank can run a block-chain on a single computer, if it so chooses, and still deliver efficiencies. Contracts, trades, debt and equity issuance, AML/KYC data, client records, transactional data, big data, little data, just about everything can be recorded on a block-chain. “Utilizing the block-chain is a natural digital evolution for managing physical securities,”


CRYPTOCURRENCIES

faithful immediately equate it to a success for the pretend currency. But it’s not.”This is a problematic starting point, but a necessary one. The early case for Bitcoin tended to be that the block-chain would work as the basis for a crypto-currency that would supplant fiat currencies. Then we found out that it would work for multiple crypto-currencies – dogecoins, kittehcoins and all the rest. Then came Ripple, the Ethereum project, even Nasdaq (of which, more later). This third stage told us, first, that the block-chain could work as a basis for recording ownership and transfer across a range of asset classes, and secondly, that we could have block-chains without crypto-currencies. Early proof of concept might have been delivered by the “Bitcoin

faithful” (not to mention the company some of them kept), but we’re past all that now. As Skinner tweeted, many of today’s bankers simultaneously embrace the block-chain and repudiate Bitcoin.

From an FX perspective, this is dismal news. But we’re not finished yet. Let’s take a look at the value of Bitcoin – and crypto-currencies in general – to the nascent “block-chain industry” (for want of a better term). If the value of a fiat currency is an (imperfect) expression of a state’s economic performance, perhaps the value of crypto-currencies will be influenced by today’s enthusiasm for the block-chain – whether bankers like it or not.

THE CRYPTO-GHOST IN THE MACHINETo start with some more bad news, block-chain-based asset ownership can deliver

Nasdaq announced in mid-May 2015 that it is developing “block-chain-enabled digital ledger technology that will facilitate the issuance, transfer, and management of private company securities”. While no doubt these qualities are already present in Nasdaq’s pre-block-chain ledgers, the exchange’s paperwork stressed that “the creation of a securities distributed ledger function using block-chain technology will provide extensive integrity, audit ability, governance and transfer of ownership capabilities.” This is an “enterprise-wide initiative”, and Nasdaq has even appointed a Block-chain Technology Evangelist – Fredrik Voss, Vice President, Nasdaq – to make it all happen.

Nasdaq builds a block-chain



Bitcoin versus block-chain – have we put the cart before the horse?

says Bob Greifeld, CEO, Nasdaq.

There is no longer a case for Bitcoin as the rational, internet-age alternative to the US Dollar. There isn’t a fintech apocalypse coming; traditional banking is not about to collapse because physical dollar bills can’t be loaded onto a smartphone in the way that bitcoins can. Forget all that. If we want to get into seriously blue-sky thinking, we might reflect that there are more efficient approaches to the money supply than paper and print, but even that would be a conversation about a block-chain rather than dear old Bitcoin. “The opportunities

we can envision the block-chain providing stand to benefit not only our clients, but also the broader global capital markets,” Greifeld continues. Nasdaq – see below – is moving to a distributed, block-chain-based ledger-style solution for recording securities transactions that explicitly “leverages the block-chain in a non-currency manner”.End of story? Not quite. Consider Romit (and don’t overlook Bitspark; see the box Bankers

vote for Bitspark). Romit is the “global remittance platform from Robocoin”. It’s also a rebranding for Robocoin, which started out in 2013 installing Bitcoin ATMs, and a repositioning for the company in the market. Robocoin did ATMs; Romit does remittances. Via the Romit Cashier App, Romit “leverages block-chain technology, but removes Bitcoin from the user experience”. Omitting the technicalities, you, er, load some dollars onto your smartphone, make a (cross-border) phonecall, and the person at the other end gets the value you thus remitted, in that jurisdiction’s fiat currency. Fee: a flat 4%. Under the hood, a transaction in and out of Bitcoin occurs, but you don’t see that. Robocoin is a relatively new company, by traditional banking standards at least, and Romit is a very new rebrand/app – launched April 2015. This is not (yet?) a success story, but it is a story about adaptability.

So let’s make the obvious points. Typically, there is high mobile-phone penetration among the unbanked of (for example) southern Africa. The Romit Cashier App is viable for micro-payments as well as remittances. This is an instance where Bitcoin acts as the “missing link” to address two pressing

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“…block-chain technology has a lot of potential, but it may be overly simplistic to exclude the block-chain’s

currency unit from any future conference speech about innovation.”

Every year at the international payments conference Sibos, SWIFT’s innovation initiative Innotribe hosts the final of its year-long “Start-up Challenge”. The winner is chosen by a vote of delegates attending the final – most of whom are bankers – after presentations by the finalists, and a similar approach is taken at each of the regional semi-finals that take place through the year. The Challenge is thus structured as a pitching opportunity for participating start-ups, and a “meet, greet and maybe invest” for bankers in search of the next big thing.

In late May, at this year’s third regional semi-final, in Asia, Bitspark was chosen to be a finalist in Innotribe’s Start-up Challenge at Sibos 2015 in Singapore. Bitspark is a “crypto-financial services provider for the APAC region, pioneering the world’s first block-chain powered end-to-end remittance service in addition to a block-chain auditable feature-rich trading exchange” – and not only that; it uses Bitcoin between fiat currencies. Bitcoin is a finite resource. Just saying.

Bankers vote for Bitspark

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issues facing the wider banking industry. Not a Silk Road in sight.

The Robocoin/Romit story may suggest that street-corner retail availability of bitcoins via ATMs is not an immediate prospect, but it is also, just possibly, an indicator that there will at least be some demand from the payments industry for bitcoins. This doesn’t quite amount to grounds for a celebration,

although there’s a conceivable parallel here between today’s multinationals’ operational use of FX and the payment/remittance industry’s future need for bitcoins, but again – we’re not finished yet. The point to make here is just this and no more than this: block-chain technology has a lot of potential, but it may be overly simplistic to exclude the block-chain’s currency unit from any

future conference speech about innovation. Chris Skinner was right: it’s becoming a truism to say that block-chain applications can be developed without Bitcoin. But sometimes, it isn’t true. And that has implications for the role of crypto-currencies in FX.

So where does this get us? To a difficulty. But first, to a further endorsement from a possibly unexpected source.

BANKING IS MORE THAN DATA MANAGEMENTVitalik Buterin is the founder of the Ethereum project. This is a “community-driven project aiming to decentralise the internet and return it to its democratic roots”, which means (among other things) that we’re talking here about the decentralised model of the block-chain – the model on which Bitcoin is based, of course. Buterin has been quoted in these pages before (for example, e-Forex January 2015, page 52), and is a prominent advocate of block-chain usage for the recording of asset ownership. Contracts can be recorded on block-chain technology, Buterin has said, as can just about anything else. “If an organization wants to use block-chains internally, then great,” says Buterin. Distributed, good; in-house – that’s fine, too.

Along with the specifics, job offers at Ethereum include the

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“The thing that’s really cool about the block-chain is that it’s a massively replicated, massively distributed peer-to-peer network,” says Fred Wilson, co-founder, Union Square Ventures. “If one node goes down, nothing gets lost. The internet was designed to be a network that you couldn’t take down. It too is massively distributed.”

Lately, we’ve been hearing a lot about “the internet of things”. This is the workable catch-phrase for an evolution that has been under discussion since the turn of the century, when “the intelligent fridge” was expected any time soon – it would detect that the last of the butter had been used up, and liaise on its owner’s behalf with the intelligent grocery store. It is a feature of every successful innovation that every component needs to exist before any of it can work. And that then – if it’s going to happen, everything happens very fast. The internet of things isn’t quite here yet (and fridges are still quite stupid), but it’s getting closer. We have the internet, the block-chain, and we even nearly have driverless, internet-enabled delivery trucks. Our fridges will soon be messaging our wearable technology to say that the shopping’s been done. Why is this relevant? Because a new phrase and a new distinction have entered the Bitcoin conversation: that between “dumb money” and the central component of – wait for it – “the internet of money”. Prospective buyers of crypto-currencies might care to ask themselves a new question: how else did you think you were going to pay for the butter?

Intelligent money



CRYPTOCURRENCIES

opportunity to “help rewrite the history of future generations”. More immediately relevant to our purpose is a recent blog post by Buterin. Writing as founder of an enterprise that centres its whole being around block-chain technology, and in the course of a discussion of whether or not there will ever be a “killer app” that renders the block-chain pervasive (conclusion: probably not, but we don’t need one), Buterin says: “It is indeed true that currency is necessary to make crypto-economic block-chains work (although NOT block-chain-like data structures … ), but the currency is there simply as economic plumbing to incentivize consensus participation, hold deposits and pay transaction fees, not

as the centre-stage point of speculative mania, consumer interest and excitement.”

This is by no means a whole-hearted endorsement of Bitcoin (the post is worth reading in its entirety; it’s at www.ethereum.org, and it’s dated 13th April 2015), but that distinction

between data structures and crypto-economic usages is thought-provoking.

This is where the bankers of today are – how does one put this? – not going right. Broadly, for a bank, there is a very strong case for any solution that promises to optimise the management of data, whether

that is “big” customer data, or incoming AML/KYC data from a correspondent bank in a remote market, or anything in between. But a bank is not a data repository. Effective compliance is not the only commercial goal of a financial institution. Potentially at least, there is a pitfall here: bankers who welcome the block-chain may be addressing data management rather than the future of money.

Yes, that is an elephant standing across the room. Yes, there are several more waiting downstairs in reception. We could discuss the evolution of

Physical dollar bills can’t be loaded onto a smartphone in the way

that bitcoins can

There’s an entertaining little argument going on in the background of the crypto-currency debate, over which of the several Bitcoin-focused investment funds can legitimately claim to be first. In Jersey, there is GABI, the Global Advisers Bitcoin Investment Fund, which is regulated by the Jersey Financial Services Commission. GABI was first incorporated in March 2014. In the Cayman Islands, subject to the regulatory oversight of the Cayman Islands Monetary Authority, is the Crypto Currency Fund, formerly the Tera Capital Fund, which changed its name (and thus formally focused on crypto-currencies) in April 2014. But Tera started out in 2005, investing in Russia. And here on the desktop is the recent news item that Greyscale’s Bitcoin Investment Trust will soon be publicly quoted. Bitcoin Investment Trust is regulated by the US Financial Industry Regulatory Authority, and was launched in 2013. Until now, though, it has been restricted to “qualified” investors at the “sophisticated” end of the market. Unqualified unsophisticates might be comforted to remember the old saying that it can sometimes be best to be second with a good idea.

First among equals?




global regulation. We could discuss the big banks’ freedom of movement vis-à-vis, say, a hypothetical Google Bank, or Facebook Bank, or indeed Romit, Western Union, PayPal or perhaps Grameen Bank. But let’s not do that. Instead, let’s notice that even the Ethereum project uses a crypto-currency as part of its “plumbing”. They call it Ether, and their term for it is “crypto-fuel”. Ethereum’s website tells us that: “Ether is a necessary element for operating the … platform we are building,” and that: “We have been approached by several Exchanges that are looking to list Ether.”

The “crypto-fuel” than runs through the “plumbing” of the Ethereum project is possibly on its way to becoming an exchange-traded asset. That makes it sound more like a

(pretend?) commodity – oil, perhaps – than a (pretend?) currency, but the point stands: for purposes other than data management, you need to add a lubricant to your block-chain. [Follow another link on the Etherium site, and you come to

another company’s blog post describing Ether as a “Bitcoin-like crypto-currency”.] Back-office block-chains, running data and not much else, don’t need a currency element. But front-office (let’s call them that), live-action block-chains either run on crypto-currency “fuel”, or effectively generate it, or something in between. This is still not quite grounds for a celebration – not until the future arrives, anyway – but could we tentatively move the Champagne a little closer to the fridge?

The difficulty with Bitcoin is as distinctive and unusual as the crypto-currency itself. Nathaniel Popper, author of Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money (and doesn’t that sub-title tell a story?), says: “Bitcoin, like any money, needs people to want

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Banks don’t like Bitcoin, but people do

To run an internal block-chain, on an intranet or even hypothetically on a single laptop, is to generate an auditable record of, say, trades, value transfers, permissions, contracts over time. This is a valid use case. Proposed enhancements include the “CRM block-chain”, which would be extended to a customer as the basis for a relationship, and even, in one recent encounter, “the trading desk’s very own block-chain”, which would deliver an inalienable record of log-ons, permissions, passwords, exposures, holiday entitlements and take-up, who stayed late, who wrote what email to whom, and so on.

The undistributed block-chain



CRYPTOCURRENCIES

it and use it. It is as successful as the number of people who are willing to put their faith in it.” Banks – for valid reasons, as above – are not willing to put their faith in Bitcoin. They may not have collectively attempted to “kill” Bitcoin, as is sometimes alleged in the Bitcoin media (oh yes, there really is a Bitcoin media), but it is true that some Bitcoin-related enterprises have experienced difficulties in accessing conventional banking services.

Banks don’t like Bitcoin, but people do. Weird, huh? Even

genuine difficulties with Bitcoin (an “invisible” transfer of value across international borders can be at once legal, decent and an AML/KYC nightmare), but that isn’t the point. Bitcoin, for our purposes, amounts to a banking-versus-technology play. Which of those two sides is more likely to deliver innovation and thus growth?

PLAYING THE BLOCK-CHAIN GAMETo imagine for a moment that they originated separately, Bitcoin and the block-chain have come to us in the wrong order. To take the analogy of a popular board-game, it’s as if “Satoshi Nakamoto” had written a paper proposing Monopoly money, with an “underlying board game” that nobody noticed for several years. The block-chain should have come first, although without the crypto-currency and the headlines and (let’s assume) an internet-inspired zeitgeist in favour of freedom and innovation (and a banking crisis in the background), perhaps the block-chain wouldn’t ever have caught our attention in the way that it now has. Possibly, just possibly, data companies would have been using the block-chain since 2008, while struggling to interest anybody else in their innovation. Bitcoin, or something like it, would have evolved as an insignificant by-product.

The Ethereum project has Ether, which may soon become tradable. Romit moves (say)

No, it’s a bitcoin. One frequently cited issue with “the world’s first digital cash,” as Marc Andreessen, co-founder, Andreessen Horowitz, describes it, is that it doesn’t fit into any of the conventional categories. It isn’t a currency, in the sense that a US dollar is a currency, because it isn’t backed by a government. It isn’t a commodity, in the sense that coffee and oil are commodities, because…

…no, wait. Bitcoin is almost a commodity, in that you can buy bitcoins from any supplier and end up with a stock of bitcoins. And it’s almost a currency, in that it’s a medium of exchange. It’s kind of both a currency and a commodity, but it’s also something else. The category into which Bitcoin fits has not yet been precisely delineated. “Bitcoin is contrary to people’s understanding of money,” says Nathaniel Popper. It matters that Bitcoin is both durable and useful. It doesn’t matter that Bitcoin falls short of compliance with the expectations that we have of a conventional currency or commodity. Bitcoin does what Bitcoin does, and if that proves useful, that’s enough.

Is it a currency? Is it a commodity?

weirder is this: Bitcoin doesn’t go away. It continues to function as a form of currency (in the broadest sense) even though banks won’t handle it. Most disconcerting of all – for bankers, anyway – is that a significant proportion of Bitcoin-related innovation is directed more or less explicitly at finding ways to operate outside the banking system. Not because it’s legally or otherwise questionable, but because even crypto-financial activity needs a framework, and in this space, the banks won’t provide one. They may have




dollar-denominated value to other fiat currencies via Bitcoin. Different use cases, one more explicitly block-chain based than the other. Romit serves to demonstrate that Bitcoin itself can have its uses (and note in passing that the Bitcoin component of a value transfer via Romit is invisible), while the Ethereum project gives us a hint that if you’re building a block-chain-based “engine”, you might find that it runs better with a lubricant. To exclude the crypto-currency element from a block-chain is unrealistic. But the key features (and the history) of that crypto-currency are not the critical issue. It’s not as though the developers of the online

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game World of Warcraft felt that they had to start with Monopoly money. In World of Warcraft, you trade something called Gold.

Good name right? Of course, none of this adds up to a ringing endorsement of Bitcoin (XBT on Bloomberg) as a real-world trading currency. Except that it’s there, it’s useful, and the supply is finite. The charts do show some useful volatility over time, although today it’s easier to develop a case for Bitcoin as a long-term hold: it’s potentially the digital “rare earth” of the international payments industry, for example, and it might be a component in banking the unbanked. Given that we seem

to be approaching that inflection point in IT evolution at which even “digital immigrants” understand their smartphones, it’s also easy to use. Speaking at a conference hosted by the New York Public Library in late May (at which Nathaniel Popper also spoke), Marc Andreessen, co-founder, Andreessen Horowitz, said: “The goal of the Bitcoin project is to be the world’s first digital cash. Issued by everybody who wants to participate in the network, validated by everybody who participates. Everybody makes sure that the rules are followed.”

It’s cash and it’s easy, but its key features are participation, validation, rules. We can’t talk about the cash without acknowledging the block-chain behind it, any more than we can talk about a dollar bill without acknowledging the lump of gold, ha ha, that’s held in the US Treasury to back it.

So. Final question. Imagine an internet-enabled, networked world, with all its assets, contracts and data held on block-chains, all its transactions and payments, large and small, flowing between smartphones and terminals, all its people wrapped up warm in wearable technology, driving around in driver-less cars and returning to homes that are connected to the “internet of things”. For such a world, would you invent fiat currency, or would you equip yourself with crypto-currency?

The goal of the Bitcoin project is to be the world’s

first digital cash



CRYPTOCURRENCIES

Crypto-Grentry, not Grexit, for Greece

Lee Gibson Grant

William Essex: So tell me how all this began.

Lee Gibson Grant: People are trying to create asset tokens over the block-chain; they would be plugged into gold, silver or other assets. I thought about an island: how would you do real estate? How would you tokenise real estate, oil and gas – the island’s reserves?

WE: An asset-backed infrastructure via the block-chain?

LGG: Yes, the paper* is a set of case scenarios. Nothing technical – just straightforward descriptions of what could be possible. What benefit could there be for someone who buys a token? How could they use the token? How would you know that the island is backing the token?

WE: And then you went from a hypothetical island to Greece?

LGG: What happened was, I began to have conversations about doing it properly. There are Greek islands that could be bought for EUR 500,000 and

added to a basket of assets. We started looking through real-estate websites and got up to EUR 35m for a 1,200-acre island. That was when I contacted the Greek embassy in London and asked them about their fire sale – in a fire sale, obviously, assets are discounted which is a perfect reason to buy their token – but their answer back was: we’re restructuring and revisiting the process. I started looking into that, and found that they were actually talking about launching another currency, and I found the finance minister saying that Bitcoin is flawed but the block-chain can offer attributes.

WE: It was happening already.

LGG: I looked into the debts and found that Greece has an estimated $600-700bn in gas and oil reserves. Looking at Eurostat figures for government-owned financial assets as a percentage of GDP, Greece ranks seventh in the EU while Germany is seventeenth. Then I found out that Greece has a very decentralised government, so municipalities could adopt their own solution, for example.

If you tokenise the assets, you’re not selling off the assets themselves.

WE: One of the proposals has been a future-tax coin, hasn’t it?

LGG: But the issue with a currency is, what’s backing it? Future tax revenues in Greece? It’s an IOU. If they take the assets they’ve got, and tokenise them, they can use that as a currency, they can use that because it’s backed. Once it’s a tangible asset – because it’s backed – it opens up for trading. So with the tradable asset they can create liquidity to pay loans. The logical option is to pay in tokens, with the liquidity, and ask to have the percentage on the debt reduced.

WE: Without leaving the Eurozone.

LGG: This would run alongside the euro. Greece doesn’t lose any assets, either; they’re just tokenised. It just creates that extra bit of freedom. It’s the place to do this; nobody else has done it before.

There is a potential crypto-currency solution to the Greek debt crisis. Lee Gibson Grant, founder of Coinstructors and instigator of the Drachmae project (www.drachmae.com) speaks to William Essex.

*Lee Gibson Grant’s paper Drachmae – a Block-chain Solution for Greece may be found at www.drachmae.com with further blog commentary at www.coinstructors.com.


Jonathan, what work have you been doing to enhance your suite of FX e-commerce services?

JH: Our focus has been on improving the user experience that we provide to our customers through both multi-dealer and single dealer platforms. From a pricing perspective, we have created and implemented a new pricing function that enables BBVA to provide more competitive quotes into multi-dealer platforms. This also enables

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BBVA eMarkets – easy to use, simple to deploy and an effective tool for price discovery, market analysis, trade execution and post- trade queries.


Launched in 2013, Banco Bilbao Vizcaya Argentaria’s (BBVA) eMarkets is a next-generation e-commerce platform, initially focusing on FX and money markets, which enables corporate and institutional clients to execute a full range of FX transactions online in real-time, benefitting from a transparent and competitive pricing and the ability to make multiple related payments.

Jonathan Healey, Global Head of eFX and eFixed income talks to e-Forex about the new platform, what the Spanish bank set out to achieve in building it and what’s in the pipeline for the future.

Jonathan Healey

us to increase the number of platforms in which we participate. We deliver pricing and liquidity to our customers through FXall and 360T TEX. We are also connected to 360T Supersonic and Bloomberg FX to enable executable streaming prices, as well as full support for traditional RFQ/RFS protocols.

Alongside this we have implemented a new single dealer platform (BBVA eMarkets) built using more current technology (HTML5) both to increase simplicity of

use, and ease implementation issues that we encountered with our old technology. Our platform now only requires the user to have a relatively up to date browser in order to access the system. This is a new, strategic system for BBVA and our plan is to continue to add functionality over the next year. What features are available on your FX platform and what technology underpins it?

JH: BBVA eMarkets supports FX Spot, Blocks, Forward,


PLATFORM PROFILE

Swap and Deposits as well as NDF trading. It also provides charting capability, market data and economic data. News and economic research will be added in the near future.

From a technology standpoint, as mentioned, it is based on HTML5 in order to provide simplicity of deployment. This also means that the platform is able to operate on tablet and mobile device; in the future we will be producing versions of the system optimised for these form factors.

The platform has been built in partnership with leading

technology providers and we are very proud of the results.

The platform offers over 140 currency pairs, some of which are in crosses in which BBVA specialises. Our availability of prices, through all market events, has been widely mentioned by our clients as an impressive feature; our goal is to always offer a price even during challenging market conditions. In certain regions we also have third-party payment functionality embedded into our single dealer platform, increasing the use of it by our large, small and medium corporate clients.

What factors infl uenced the design of the platform and how have they engineered it to make it easier for clients to engage and collaborate with BBVA?

JH: BBVA eMarkets was designed to be simple to deploy and use. Our intention is to give our clients an effective tool for price discovery, market analysis, execution and post-trade queries. We are client driven in our development plans; we believe it is important to deliver functionality that works for our clients and which fi ts into their workfl ows. For example, we have supported the linking

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BBVA eMarkets

of trades on BBVA eMarkets to payments that clients wish to manage from their bank accounts held by BBVA via many different payment methods in the different geographies where BBVA has retail businesses.This is one of the positive features of building a system from scratch in a new bank where the e-FX group has brought its own experiences of creating a single dealer platform from various other banks. Our efforts have focused on analysing pros and cons of the various approaches of the forerunners in the e-FX space to ensure we can give our clients from the beginning a platform that fulfils their needs

What types of clients are you catering for, where are they located, and how have you

tailored your e-FX services to each of the different client segments?

JH: BBVA eMarkets was created for all our customers, but the nature of our bank means that we have a large number of small to medium-sized corporate clients in all of our geographic footprint throughout the US, Central and Latin America and Europe. As stated, we have designed this system accordingly for speed and ease of use, rather than layering many levels of complexity. We recognise that these clients may not be as familiar with FX and global markets as is the case with larger corporates and financial institutions, so we have focussed on areas such

as ease of deployment and a simple user interface as well as integration of FX and transaction banking functions to make the foreign payment process much easier.

We feel that larger corporations and financial institutions will choose to interact with BBVA via multi-dealer platforms, which is why we have connected to the main e-FX multi-bank platforms in the market in both RFQ and streaming modules. In what ways is BBVA assisting clients to meet the challenges of regulatory reform in FX and how have the regulatory changes created opportunities for the bank to provide enhanced value to clients?



PLATFORM PROFILE

JH: BBVA provides a range of services for clients such as delegated reporting where clients do not wish to report trades to regulators themselves; we make pricing available for appropriate products via major SEF and MTF platforms, and we provide mid-pricing across all of our execution capabilities for those clients that require it.

We are also very close to the new MIFID II regulation and the ESMA Supervision rules on Electronic Trading as far as FX aggregation, algorithmic trading, high-frequency trading and market transparency are concerned. Our entire IT team has been also working very hard

during the past few years in ensuring timely execution, not just for e-tickets but also for voice deals.

What plans do you have for rolling out new e-FX trading functionality and moving your e-platform onto the next phase of development?

JH: We will continue to develop the platform based on the principles mentioned above: simplicity and ease of deployment. Currently our focus is on improving the post-trade capabilities of our system to enable clients to have greater flexibility in the management of their FX requirements,

such as early settlement, in a self-service manner. At the same time we feel that it is important to include further market information including market news and links to BBVA’s leading, world-class, research. We will also be adding order management capabilities within the next year.

Finally we see BBVA eMarkets as a cross-asset platform and will be adding other asset classes, beyond FX and deposits to provide a full service proposition to our clients, as well as to meet related regulatory needs. We will continue to integrate to all features and developments of the e-FX multi-dealer platforms we connect to and extend our connectivity to two further major e-FX venues in due course.

“We are client driven in our development plans; we believe it is important to deliver functionality that works

for our clients and which fits into their workflows.”


There are a myriad of competing challenges facing the FX back office today. While the industry makes efforts to address these, other steps are being taken to further develop the use of the FIX messaging protocol in FX which will have important consequences for the post trade FX landscape.

Almost two years ago the FIX Trading Community formed a global post-trade working group, merging US and European working groups and inviting greater participation from Asian

and Japanese members, to further expand the organisation’s collaborative business reach. David Tolman, co-chair of the Global FX Post-Trade FIX Working Group, says the group was set up to come up with industry guidelines across all asset classes. The FIX protocol has a lot of flexibility and Tolman says the guidelines are aimed at giving greater guidance on how it should be used. Guidance for the FX market, covering pre-trade, SEF, trading venues etc, has been drafted over the past nine months and some initial

implementations with the major FX vendors has begun.

Tolman says that, “These specifications bring the FIX protocol right up to date and it is now a matter of market participants sticking to them. The only barriers are whether or not what market participants are using now is working and how best to get everyone up to speed.”

The trade identifiers contained in confirmation messages is one issue that has been addressed.

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Taking cost and complexity out of post-trade FX operations


Regulatory requirements are adding further cost and complexity to the FX back office so Frances Faulds reports on how the FIX Working Group and two of the industry’s leading technology providers are helping market participants to address the issues.

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FX E-COMMERCE & PLATFORMS

The fields for the trade identifiers are now in place, to return the trade identifiers to the buy-side and a workflow that supports accumulating the trade identifiers over time and gets them back. A second issue that needed to be addressed is in regard to connecting to the CCPs, as today, particularly in the SEF space, there is greater interaction with the CCPs needed. The guidelines provide explanation of the confirmation status and clearing status needed in the workflow, to support the new regulatory requirements. “The spec gives the buy-side everything they need now, all the identifiers and all they need for clearing,” says Tolman.

According to Tolman, in terms of bi-lateral transactions using FIX, confirmations and allocations are increasingly moving to real-time. It happened in the equities market and now the move to faster processing is happening in FX. Increasingly, he adds, investment managers are able to accrue information from the transactional process to get current positions. “FIX gives you the underlying data to start tracking positions, controlling risk and making decisions,” he says.

The working group continues to work with the industry to simplify post-trade processing, lower costs while improving speed and accuracy. He says: “We are making breakthroughs on this. We have spent a lot of time figuring out how to

solve problems upfront, how to validate things upfront and our next step will be the development of service level agreements (SLAs), outlining how fast we expect confirmations back, and deliver on these.”

Tolman says that the FX industry as a whole is focused on tackling this – the major sell-side and buy-side firms are working on making bilateral FIX processing work. “It is an industry effort and the good news is that the industry is interested in doing this. While it is a little early to say, there should be, like in the equities market, faster, more accurate processing and less downstream breaks.”

DEALING WITH BESPOKE SYSTEMSPeter Kriskinans, managing director of DealHub, says that to date, much of the post-trade solutions industry has

focused on building connectivity networks and utilities which are valuable for vanilla workflows between counterparties, but leave banks to manage more complex internal and external trade processing challenges with an array of custom built solutions. As complexity, fragmentation and regulation have increased, so has the cost of building and maintaining these point solutions.

While DealHub has a broad range of scaled connectivity services, the company has always had a unique specialisation in tackling the most complex, bespoke trade processing challenges, deeply integrated at the world’s largest FX banks. Kriskinans says: “Over the last few years, we have ‘productised’ the technology and expertise developed during these bespoke projects to launch a post-trade platform that delivers a scalable backbone for market connectivity and workflow automation that is very fast to deploy and integrate, delivering top tier post trade performance and significantly reduced costs to market participants of all sizes.”

The DealHub platform acts as a unified interface between the fragmented external marketplace and the constantly evolving ecosystem of internal bank risk and David Tolman

“FIX gives you the underlying data to start tracking positions, controlling risk and making decisions,”

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downstream systems. “By creating this unique point of standardisation in the post-trade workflow, DealHub delivers a single platform for complex trade processing tasks, as well as providing unrivalled transparency into multi-channel FX flows for both trading and compliance teams,” he adds.

From this flexible post-trade backbone, DealHub works alongside customers to identify areas for improved automation and expand the platform with additional modules for trade processing, reporting and surveillance, based on DealHub’s rules engine and flexible user interface. These modules allow workflows to be quickly and efficiently tailored to a customer’s precise needs – from position keeping to risk splitting, profitability analysis to compliance alerting.

In the rush to meet initial deadlines, many institutions opted for a minimum solution to reporting and clearing workflows on day one, implementing the basic connectivity and workflow tools to connect to trade repositories and CCPs and allow them to submit trades.

However, Kriskinans says: “As a result of this short term approach, we’re seeing a lot of firms with a heavy workload of manual workarounds and exceptions to manage - and this is where DealHub can really

help. Unlike ‘one size fits all’ reporting solutions, we have the components and the expertise to integrate deeply into existing bank systems and automate the end to end reporting lifecycle without causing unnecessary disruption to core systems. Some of the tools we’re seeing demand for include our universal archive and regulatory dashboard to show all trading activity and its reporting status, as well as smart tools for managing exceptions and a matching engine for reconciling trade data such as UTIs with details submitted by counterparties.”

TACKLING FRAGMENTATIONUnderstanding and acting

on trade flow and risk across multiple venues and counterparties in real time is one of the biggest challenges facing FX businesses today. Kriskinans believes it is no longer good enough to reconcile net positions in back office risk and settlement systems that can take many minutes, or even hours, to reflect the reality of the market. “To get a proper insight into your trading activity, you need to combine data across venues and ideally across asset classes, in real time to get a live view of flow and exposure across your trading operation,” he adds.

This throws up two main challenges – firstly, getting all the data in one place and in one


A new layer of complexity has been added to the FX back office by regulatory requirements

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format in real-time, secondly putting the technology in place to combine that data with historical information in a flexible front end that delivers a live, updating view of trading activity and history. But according to Kriskinans, this is way beyond the capabilities of standard business reporting tools, given the millions of updates per minute flowing through an active trading organisation.

Uniquely in the FX market, the DealHub platform is able to solve both these challenges with trade data integration, combined with a flexible reporting and monitoring front end that delivers real-time business intelligence. “The smartest organisations are starting to use this live data to drive decision making in real-time. That could mean using latency information to continually fine-tune performance across an e-commerce infrastructure, or it could mean real-time analysis of end to end profitability of customer flows, driving pricing and market participation strategy on a second by second basis. The more you can automate those data flows and decision processes, the more competitive and profitable your business can be,” adds Kriskinans.

Implementing DealHub’s

Post Trade Platform enables customers to consolidate onto a single post trade infrastructure that cuts through the spaghetti of point solutions and legacy platforms that magnify complexity and cost in a typical post trade operation. Kriskinans says that this unified infrastructure is a great starting point for innovation and automation in post trade flows and DealHub is working with customers in a number of areas to reinvent and streamline processes and workflows.

High on the agenda at the moment is bringing processes that traditionally occur long after execution, such as matching and confirmation, further forward in the workflow. Kriskinans adds: “This near-time or ‘back to front’ trade processing not only allows more effective management


of risk, but also allows errors and out trades to be identified and resolved much earlier in the workflow, ensuring back office positions are accurate and dramatically cutting exception management costs.”

Another area that DealHub is actively working on with customers is expanding its platform to capture and process other OTC trade flows beyond FX as there are obvious efficiency gains and customer service benefits to be had from operating a single post trade infrastructure across multiple assets classes.

ORDER MANAGEMENT PERSPECTIVESIn 2013, Broadridge Financial Solutions and TwoFour Systems first announced their cooperation to provide an end-to-end solution for treasury-based instruments, combining the strengths of Broadridge’s global multi-asset post-trade solution and TwoFour’s leading cross-product solution for orders, trading, front-office position keeping and treasury risk assessment. Then in December of 2014, Broadridge acquired TwoFour Systems, which is now Broadridge FXL. The acquisition addressed the rising demand for advanced FX and cash management technology among financial institutions, a reflection of an imperative across the entire financial services industry to renew systems and improve operational efficiencies. This is

Peter Kriskinans

“To get a proper insight into your trading activity, you need to combine data across venues and ideally across asset classes, in real time…”

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especially critical in the FX and money markets area, however, as regulatory mandates reshape the landscape for clearing, reporting and operational controls; and clients continue to require additional services and innovation.

Broadridge’s FX and Liquidity (FXL) accommodates the needs of banks, broker/dealers, and FCMs that manage multiple currencies, interest rate positions and futures, using robust adapters to enable seamless, real-time aggregation of global currency positions across multiple systems and trading venues. While FXL is primarily a post-trade solution it includes an order management system, managing the entire lifecycle after the trade has been executed, providing better insights, execution and straight-through processing, from risk analytics through cash management.

FXL enables real-time aggregation and management of currency positions, risk and P&L it can also provide firms with a complete management of exposures by aggregating and validating data globally from multiple source systems.

Chris Davis, vice-president at Broadridge FXL, says: “Typically our clients will execute a transaction on a single-bank portal. We receive a FIX message and create a position - giving them a view of positions

by currency or a variety of other views. FXL can show them if they are making or losing money based on where the market level is. The system handles credit checking and manages margin and collateral for clients - essentially providing the entire back office for confirming/settling transactions, communicating with SWIFT, matching, reconciliations and a sub-ledger - for FX, bullion and options.”

The new layer of complexity that has been added to the FX back office by regulatory requirements has been absorbed by FXL, which has been developed as an out-of-the-box solution that adheres to industry standards and market requirements. For example, an automatic feed is taken out of

Broadridge FXL, direct to the CCPs and trade repositories to fulfil the new trade reporting and clearing requirements.

Davis adds that FXL is Dodd-Frank and EMIR compliant, both for users which are swap dealers and need real-time intraday reporting, and market participants who have end-of-day reporting needs. Says Davis: “When we created FXL we specifically designed the technical architecture to evolve as technology has evolved. So when new publishing mechanisms come out we don’t have to rewrite the architecture. We started with C# front end and have moved to HTML5 front end.”

REDUCING COSTSFXL allows for globally-distributed

There is rising demand for advanced FX and cash management technology among financial institutions

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information, around the clock, a feature that Davis says clients find very beneficial, to have a view into where their transactions are being processed as well as their most and least profitable segments, and thus helps with cost reduction. He says: “We are helping tier two and smaller institutions become competitive with the larger financial institutions. We have a client-facing portal that allows our clients’ customers to self service – meaning they can request quotes on streaming prices, deal on the platform, confirm and settle trades, see account balances, and search for reports and statements. In the past, it was only the larger institutions that could deal on that kind of real-time, 24x7 basis.”

He adds that the ability for smaller institutions to deal on a 24x7 basis means that when they swap time zones and there is no one physically on the desk, they can still service clients and more efficiently interact with the market through the automation Broadridge creates for them. This allows our clients to provide a better experience to existing customers but also makes them look much more appealing to the broader market – expanding the quality and size of the customers they can reasonably go after and win.

Broadridge FXL enables clients to seamlessly implement a leading set of capabilities for treasury trading and operations.

The flexible, integrated solution offers best-of-breed and leverages a modern HTML5 front end, offering a competitive alternative in the treasury solutions marketplace.

The Broadridge solution has been built to take advantage of the entire straight through processing rules the company has developed. “This enables a client to request a quote, add an instruction that is already authorised, and money can move between accounts seamlessly at the touch of a button,” Davis adds.

TOWARDS A NO TOUCH ERAIn terms of the move towards an exceptions processing/no touch era in FX, Davis believes Broadridge’s clients are already there. “A lot of our clients are within the mid to high 90s in terms of an STP percentage,” he adds. While some of its payments clients dealing with different segments of the market such as some very exotic currencies need to be touched, simply because there is not the same level of automation in some areas as in the interbank market, in general the technology is enabling mid-sized players to up their game in terms of dealing and processing in the major currencies.

Says Davis: “Regardless of whether you are doing ten transactions a day or one million, it is the same solution and is scalable based on the client’s own specific architecture. We deliver a flexible, high STP-rate solution.”

The company aims, as the industry aspires to, at getting to 100 per cent STP rates and while that may seem to be some way off yet, the fact that the majority of the FX industry is already operating with STP levels over 90 per cent is an achievement in itself considering the hurdles it has overcome. Regulatory compliance has become a costly and complex area for the global FX market, and it is going to require still more comprehensive infrastructures to support both existing and future FX trading requirements across the different regulatory jurisdictions.

Chris Davis

“We are helping tier two and smaller institutions become competitive with the larger financial institutions.”

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Institutional FX ECNs seem to meet most market participants’ needs. Some ECN executives suggest that the doubling in FX market turnover in the years 2005 to 2010 and the redoubling in the five years to the $5 trillion a day to date is in no small measure due to the ease of trading that ECNs deliver. Every ECN will argue that they are the best, most effective, most efficient, low cost offering but in the fight for volume, better players will clearly survive while other will

inevitably fall by the wayside. So what is the fundamental appeal of the ECN model?

WHY ECNS?“As a general trend, trading across most major asset classes is moving towards anonymised, lower-latency trading,” says Bill Goodbody, Jr. Senior Vice President, Foreign Exchange at BATS, since March this year owners of the Hotspot FX platform. “This is most obvious in the equities market, which is now fully-automated, but

it’s also increasingly the case in the global foreign exchange market. Here, electronic trading lends itself to trading highly-liquid, concentrated pairs across fragmented markets in a 24-hour trading day – and lower-latency and greater levels of anonymity are by-products of that.”

“Customers appreciate the independence that ECNs represent,” adds David Newns, Global Head of Currenex. “They are not dependent on a single

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Survival of the Fittest – what’s coming next in the evolution of FX ECNs?


Electronic communication networks may be in the FX market sweet spot right now but Richard Willshire sets out to discover whether they can all survive.

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counterparty to provide liquidity and execution technology. This requirement was highlighted this year in the SNB move. Dependence on a single provider is a perilous position to be in. ECNs provide a breadth and depth of reliable liquidity.”

Moreover the recent regulatory censure and fines meted out to banks operating in the FX market has hastened the move of both market makers and takers to ECNs.

“The behaviour of banks has highlighted the sense of purpose for ECNs in the marketplace. And how integral we are at times of stress to the market,” comments Darryl Hooker Head of EBS Market. “We saw some dramatic and traumatic events on 15th January with the Swiss Franc and also the spike on the Euro. This has helped to remind the market of the need for a central utility. A primary source of reference, price discovery and execution. Moreover looking at the number of elections coming up in 2015 / 2016, events around the Euro and the US we would expect to see a number of other disruptive events to occur. What happened with the SNB could be replicated in Copenhagen or in Hong Kong, with any pegged currency in fact. It reminds people that they do need to come to one point. And also for the regulators and central banks it is very important for them to be able

to understand how the market ecology works through those events and they need visibility and transparency.”

If this then is the raison d’être for ECNs, what do market participants gain in terms of practical advantages from signing up with one? John Miesner, Global Head of Sales at GTX, GAIN Capital’s ECN, summarises them succinctly, “Anonymity, depth of book liquidity, multiple order types and the ability to have customised liquidity pools are all advantages to using an ECN such as GTX. But most importantly, no one client is subjected to trading on a specific bid-ask spread. Every GTX client has the option of placing limit and market orders.”

Ryan Gagne responsible for otcXchange in the US for Divisa Capital, places these benefits in historical context. “E-FX is a 15 year-old business. The thing with it is that if market participants don’t use an ECN they have to go out and buy or build a new system of their own but they can acquire this for little or no cost from an ECN. A decade ago you had to spend $250,000 to put in a connection to get a single price feed. Now you don’t even

buy the connection, you see it right on the screen. E-FX has been around for some time but more and more clients are now looking to get unbiased, multi-provider pricing. People come to us for example because they feel that the market is true. They don’t feel that the deck is stacked against them. They are looking to level the playing field. And the bigger the playing field in terms of market participants, the more likely it is that the market itself will be true in reflecting a wide range of available information.”

MARKET DIVERSITY “Having a mix of clients that are all trading currencies for their own reasons and as part of their respective strategies, with the end game being an executed transaction, is the best possible outcome for all

Bill Goodbody

“Electronic trading lends itself to trading highly-liquid, concentrated pairs across fragmented markets in a 24-hour trading day – and lower-latency and greater levels of anonymity are by-products of that”

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parties involved” suggests John Miesner at GTX. “In addition, the natural depth of book that is created by client diversity enables orders to be executed in a much more expeditious fashion.”

“Any ECN is looking to create a virtuous circle,” says Currenex’ David Newns. “A differentiated, rich liquidity ecology is a robust one. As a platform you want to nurture as diverse a client base as possible so that their differing requirements ensure that the activity in your market has as little correlation as possible. The less correlation your marketplace has the more attractive it is to others who want to join that pool in that virtuous circle. Our pool includes our white label brokers, banks and hedge funds and asset managers who are makers and takers; so the pool is extremely diverse.”

At EBS Market Darryl Hooker tells a similar story, “The size of our community and the diversification of it is very useful. We are always able to offer a number liquidity providers. And there will always be a consistent level of service coming through the EBS Direct channel as well for those who prefer to trade disclosed rather than anonymously. On EBS Market we have that great spread of buy-side and sell-side institutions. So we are giving strength, visibility and price compression to our pricing and it is very hard to compete with that. Moreover within ICAP we have the options of both electronic and voice broking all in one house.”

While competitive pricing is vital, it is by no means the whole story. Now, as never before, clients seek the best, most suitable outcome from their engagement on a platform.

BEST EXECUTION“Best execution is in the eye of the beholder,” according to Ryan Gagne. “It is about what is important to each individual firm. An ECN gives them the tools. Does every trade need to be done on an ECN? No because it defies best execution. Best execution in my

view is to get the best price, at the least cost with the least amount of market impact. It all depends whether you are dealing 200,000, 2 million or 2 billion of base currency. It varies depending on what you are trying to do.”

“In a fragmented market, ECNs enable customers to execute against multiple providers and that’s an important aspect of best execution,” explains David Newns. “We at Currenex pull together the broadest range of liquidity to meet the customer’s needs. It’s essential to be able to leverage credit lines as effectively as possible to access to the broadest, deepest liquidity available to you, and have the confidence in the strength and breadth of your trading platform to ensure that it’s always there when you need it. And as a platform provider we have to be able to prove this to the customer and so sophisticated reporting both for ourselves internally and for our customers is crucial. Customers are becoming more sophisticated in analysing total cost and the market impact of their trading activity in being able to show how they are going about achieving best execution. But it’s not just about Executable Streaming Prices (ESP), Request For Quotation (RFQ), anonymity, lower latency, diversity, hidden orders, disclosed and undisclosed liquidity, advanced order types or technology and transparency

Survival of the Fittest - what’s coming next in the evolution of FX ECNs

David Newns

“Dependence on a single provider is a perilous position to be in. ECNs provide a breadth and depth of reliable liquidity.”

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– these are all tools that help the customer to achieve best execution.”

Given the breadth of definition for best execution there needs to be close communication between client and platform to ensure that the client can explain their needs. Consequently a consultative approach is inextricably linked with best execution and this is also an area where individual platforms can differentiate their service from that of their competitors.

CONSULTATION AND DIFFERENTIATION“It’s one of the benefits customers are getting when they are coming to otcXchange,” says Ryan Gagne. “If they tell us what their trading style is and what their

definition of best execution is, we can help find the right liquidity for them. Some ECNs have one big pool, it may be segregated but essentially you are getting all of it. We can define certain regions within our pool and create sub-pools or pools of pools. So we could cater towards high frequency traders (HFT) or a larger ticket


type trader. We have general pools, pools that have last look or re-pricing. We put those with similar or complementary trading styles together. Market makers will say that they like to price to these types of clients. So they are working with us to service their chosen client types. We also say to buy side clients, “Do you want us to improve you execution quality, find liquidity that makes sense for you to trade with?” If they say, “show us everything and we’ll filter it ourselves,” then we do that. They may have the tools to do that but those tools

The natural depth of book that is created by client diversity enables orders to be executed in a much

more expeditious fashion

Darryl Hooker

“On EBS Market we have that great spread of buy-side and sell-side institutions. So we are giving strength, visibility and price compression to our pricing and it is very hard to compete with that.”

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cost money and we can do this for them at no cost, so there is benefit for them there.”

David Newns says Currenex performs a similar role. “We’ve always supported a consultative approach to customer services as a result of our extensive white label business. As markets and customer requirements become more sophisticated there has to be a more consultative approach to customer and liquidity management. Our integration and support team works closely with the customer to determine their preferred execution mode, their preferred order types so they work with liquidity providers and takers to make sure that the customers’ requirements can be met.”

Other platforms we spoke with for this article also argued that their consultative approach was what differentiated their services in the market place. This poses a conundrum to potential clients when choosing a provider from among platforms that have broadly similar offerings.

“It is unwise to paint all ECNs with the same brush,” says Ryan Gagne. “They do not all deliver the same services and those are the major differentiators and the reason to get an ECN in addition to one someone may already have. The one they already have may cater for particular types of customer,

type of orders or geographical area. You may want a second to service other particular needs that you may have.”

The key for potential customers is to carefully analyse each platform and gauge which approach most closely matches their precise requirements. Those requirements will very often revolve around regulatory demands, particularly for banks and other regulated businesses. However technology may be an important selection criterion as well. Joining a network with technology that is either likely to date or which is incompatible with in-house systems will likely be disruptive to install or will not keep pace with systems as they are upgraded. Not surprisingly ECNs are quick to talk about their technology edge.

TECHNOLOGY“Equity traders have been putting more transactions on ECNs for decades,” continues Ryan Gagne. “More liquidity, non-bank or non traditional market maker activity, the client has the ability to work their own orders instead of going through a trading desk. They can use more technology for smarter order types. Some of that innovation is in play on some

ECNs like ours with enhanced order types. We utilise not only FIX 4.2, which is the standard but also FIX 4.4 and we support over 30 order types.”

GTX is similarly active in forging ahead on the technology side as John Miesner explains. “Over the past six months GTX has decreased acknowledgement times by 60 per cent, thus greatly decreasing latency and improving performance. Additionally, we have rolled out a “blocking by currency pair” feature, which is a core component of the strategy for many of our market making clients. GTX will also be providing a streaming market data feed that will run in parallel to our existing FIX market data feed. Providing streaming data will greatly improve fill ratios for GTX’s data sensitive clients.”

John Miesner

“At the core of any sustainable ECN offering must be the ability to meet each individual client’s specific trading needs, along with cutting edge technology and order management capabilities”

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66| july 2015 e-FOREX


So too at Hotspot which is working on a number of initiatives. These include the planned launch of a London-based matching engine in London’s LD4 data centre as well as the planned migration of its New York-area matching engine to the same New Jersey data centre where the five BATS U.S. markets are located. “One of the leading benefits of joining with BATS is the company’s long time focus on creating proprietary technology which helps to optimise trading for participants in various asset classes,” says Bill Goodbody.

Considering the commitment that ECNs are making to technology development it is far from easy to pick the winners and the losers in the battle for ECN market share of global FX trading.

FAST FORWARDResearchers at the AITE Group recently stated, “E-FX market fragmentation will remain as exchanges take greater interest in OTC FX and banks relinquish their market-making role. The FX marketplace will continue to evolve and become recognised as a stand-alone asset class, yet it remains both fragmented and dynamic. Since 2013, volume at Bloomberg’s FXGO business and FXall has sharply risen. Meanwhile, a number of emerging players

managed to grow their books of business despite a soft spot FX market.”

So what do providers say?

“From GTX’s perspective, says John Miesner, “our ability to provide tailored liquidity solutions for our “taking” clients and optimizing flow for our “making” clients is the reason we have seen such significant user and volume growth in recent years.”

At Currenex David Newns view is that competitiveness between platforms is intense and that innovation is key to survival in this space and this

Competitiveness between platforms is intense in this space

Ryan Gagne

“It is unwise to paint all ECNs with the same brush. They do not all deliver the same services...”

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and technical capability is in the DNA of his business. “In 5 years time there may be more consolidation. Bear in mind that increasing demands are being placed on platforms in terms of regulatory overhead, which we are certainly experiencing in the US with Dodd Frank. In Europe new rules coming into play with MiFid II also place significant demands on a platform and we expect EMIR will be demanding too. So it is questionable whether all of the ECNs that are currently extant will be able to mange their businesses with such demands being placed upon them by the regulators. Becoming a multilateral trading facility (MTF) is not a trivial exercise. This could be a factor in driving consolidation or perhaps, failure.”

“We believe Hotspot is well

positioned to reach our goal of becoming the #1 FX ECN,” says Bill Goodbody. “We offer award-winning technology, aggressive pricing, leading customer service and are now backed by a BATS team which boasts the #1 stock exchange in Europe, the #2 U.S. market and the fastest-growing U.S. options exchange. The ECNs who fall short will be those who are unable to scale and forget to put their customers first.”

Ryan Gagne of Divisa Capital says, “Some platforms will fail, they will go away. If they don’t evolve with the client, the client will find the next evolutionary thing. And fortunately our clients are evolving. Our competitive advantage is that our platform was built by innovators in the equities ECN space, people that had been doing this for more than a decade. So we took that quantum leap on day one. And we continue to take from the equity space what makes sense in the FX space.” Finally, at EBS Jeff Ward, Head of EBS Direct adds, “I think we’ll see a couple of strong market players. There will be niche players. Some will survive, others will probably be acquired. I think there could be a place for niche

brokers, niche ECNs but I think it is going to gravitate towards the larger entities. They’ve got the ability, knowledge and the reputation. Also some of the ECNs are now 10 years old and their technology could be vulnerable to new disruptive technologies that come in and provide a broader or better offering. It will be more difficult for a marginal player to make the new investment. So I think there will be shake out that will happen over the next 5 years and we’ve seen signs of that already post January 15th.”

CONCLUSIONIn conclusion, there seems little doubt that ECNs are going to garner the lion’s share of global e-FX turnover. Single bank platforms will run in parallel while the ECNs will offer the additional routes to market.

Regulatory requirements and audits of best execution will bolster the ECNs proposition, yet the question remains as to how many ECNs the market can support. An alternative question is: will it be viable for ECNs to survive in their current form in an unconsolidated market, given the costs of supporting and innovating their platforms against a background of price compression? Every platform is determined to fight its corner in the market however and the outcome looks certain to benefit market participants in the long run.

Jeff Ward

“Some of the ECNs are now 10 years old and their technology could be vulnerable to new disruptive technologies that come in and provide a broader or better offering.”

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We are all aware that the recent SNB crisis has been a catalyst for change. For CFH Clearing, it has created an opportunity for growth. As brokers and banks re-evaluate their technology and liquidity partners in order to minimise their exposure to Black Swan type events in future, the London-headquartered Prime of Prime clearing provider has seen a rise in the number of clients coming on board. In fact, according to Lars Holst, CEO, CFH Clearing, demand for CFH Clearing’s platforms and technology is at an unprecedented high since the SNB crisis. Brokers are increasingly focusing on having stable and reliable liquidity; quality execution and market leading risk management solutions – and that is exactly what CFH Clearing can offer to clients across the globe.

Lars Holst explains, “We have seen growth from a wide variety of clients in all the key FX regions. This includes a mixture of large corporates, asset management companies and established brokerages who are looking to diversify or strengthen their product portfolio. In addition, start-ups are coming to us, attracted by the full service we can offer.”

“Our ClearVision technology is particularly popular as it gives them the ability to manage liquidity, risk, collateral and reporting all with one platform. Clients really welcome the fact that, by partnering with us, they can have one back office, one risk overview, one prime of prime account, access to multiple to liquidity venues and multiple front ends.”

LOCAL EXPERTISECFH Clearing has always placed huge emphasis on having local expertise in whichever territory it is operating in. This is one of the reasons why the organisation continues to grow in countries such as Turkey and Russia and why CFH Clearing believes it has a compelling offering for the Asian market.

CFH Clearing has recently expanded its team, with new hires in Hong Kong, Japan and the Middle East, and continues to invest significantly in both its people and technology.

INVESTMENT IN INFRASTRUCTURE IN CHINATo accelerate market penetration in China, CFH Systems has formed a joint venture with Capital Market Automation Provider Ltd, which has a presence in two datacentres in Hong Kong and three in China. The partnership offers institutional clients the benefits of the increasingly popular ClearVision technology combined with Capital Market Automation Provider’s strong local network infrastructure and hosted services.

Lars Holst concludes, “This local network, combined with our own dedicated fibres between London and Beijing, puts us in a strong position to become a market leader in terms of technology, hosting and infrastructure solutions for institutional clients across China.”

For further information on CFH Clearing, please visit www.cfhclearing.com

CFH Clearing accelerates growth plans


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Lars Holst

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A cloud has hung over the FX Market since the fixing scandals began to erupt. A void was left in its wake with widespread mistrust in financial organisations. This gap needed to be filled, but the question was how? This is issue has become a focus for us as a business at Liquidity Pool (LPFX).

The challenge was to build something based on our fast, robust, proprietary technology. However, in the quest for transparency, there were hurdles to overcome. What rate to use for benchmarking? How can we be sure that it remains independent and not open to manipulation? We have all heard stories of the same people participating in rate generation as those taking prices, surely this is open to abuse?

The solution presented itself when we started speaking to New Change FX. The NCFX product provides live mid-rate reference prices, sourced independently. All of their rates

INCLUSIVEWe felt that for this product inclusivity was a key component, and that for this to take place a bilateral model, which would exclude certain participants below a certain size, or credit standing, would be sub-optimal. A CCP model was favoured for its ability to overcome these concerns, it also had the added advantage of offering a degree of anonymity to hide the origination of participants with specific interests.

TRUE INTEREST BASEDIn light of the fixing scandals which have been all to frequent in the news of late, we also saw conflicts with the “true-up” function offered by some of our peers. A situation in which participants within a venue could directly influence pricing, or manipulate the

Liquidity Pool Independent Mid-Rate Matching


are fully auditable, and their data cannot be manipulated or changed. After performing our own due diligence we realised that this should be the keystone to building a product that could help rebuild the lost trust.

Following an extensive period of market research, the LPFX team have developed a mid-rate matching venue with the principals of transparency, accessibility and the needs of the market at its core.

FAST/PROVEN TECHNOLOGYPowered by Liquidity Pool’s suite of proprietary matching and STP technology, the Mid-Book will initially be offered from the LD4 Slough Equinix facility only; but with the development of New Change’s New York mid under way our NY4 offering will follow in due course.

“We will give users a degree of flexibility that they have not been able to get elsewhere.”

By Sophie Verdellet

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benchmark, was one we were keen to avoid. For this reason we will be launching without true-up functionality. Future functionality will be driven by continual market research however we believe strongly that any functionality introduced should be clear and fair to all participants.

Designed purely to be a venue for exiting risk we have also decided to stop participants “fishing” or “flashing” by introducing controls and implementing a minimum order duration.

We also want to allow some degree of flexibility of matching. If an Institution is working a larger order you they want to restrict the minimum size they are matched against, in this example you would only trade in clips of a specified size. We will give users a degree of flexibility that they have not been able to get elsewhere. No self-matching will be allowed. This has been used in the past to cancel orders before the minimum order duration has passed. We also plan to delay the fill mechanism by a random time interval to further protect participants.

FIFOMatching to be performed on a First in First Out basis.


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STPSTP is provided courtesy of “X-Confirm”. This has the ability to transform the trade messaging into the best format for consumers and is also integrated with Traiana, Logicscope/Markit and RTNS for post trade messaging. Direct STP can also be configured to suit client requirements which may help further reduce their costs.

PRICINGOur mid-matching venue

Transparency – Cambridge Business Dictionary defines as “a situation in which business and financial activities are done in an open way

without secrets, so that people can trust that they are fair and honest.”

has a simple, transparent pricing structure at $2.50 per million notional. There will be no constraints on volume, or pricing tiers, making it accessible to all market participants.

[email protected]

070-071 Xenfin SS.indd 2 15/06/2015 08:54

Tod, you have spent over 20 years working in the financial markets. Has most of your career been focused around FX and derivatives?

I started my financial career in corporate banking and import-export finance, consulting middle-market firms on credit and operational risk. Our treasurer at the time invited me to visit the dealing room one day, and I never left. I spent the next 19 years at several banks in Los Angeles and New York trading spot and options, and eventually became chief dealer. When I joined Bloomberg, I began as a market specialist for FX derivatives, later managing several specialist teams for the Americas. In 2010, I became the FX business manager for Bloomberg’s core product – the Bloomberg Professional service - and built the team responsible for our desktop and electronic trading solutions. I later added various product development responsibilities in economics, commodities and fixed income.

What do your main day to day responsibilities at Bloomberg involve?

My primary responsibilities involve defining business strategy, overseeing product

Bloomberg –offering access to the global FX community


e-Forex talks to Tod Van Name, Global Business Manager for FX and Commodity Electronic Trading at Bloomberg LP.

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THE e-FOREX INTERVIEW

treasuries, hedge funds, analysts, strategists and government agencies. In fact, nearly a third of the users of our FX product, including FXGO, do not consider FX their primary asset class. This highlights the fundamental relationship between FX and all other asset classes, one of the big advantages that Bloomberg has across multiple markets, and a key benefit of our comprehensive desktop solution.

We have also focused on providing regional solutions in emerging markets, where we have seen considerable growth over the last several years. Bloomberg FX now has clients in more than 124 countries, and a team of supporting professionals that are on the ground, day in and day out, working to understand market conventions and provide carefully tailored solutions.

You and your team have been particularly instrumental in expanding the functionality of Bloomberg’s FX trading system, FXGO. Why do you think this platform has proved so popular?

Many factors have driven the rapid adoption of FXGO. It is the only execution venue that is seamlessly integrated with a comprehensive suite of FX solutions, including news, market and economic data, analytics and valuation. We also offer unrivalled depth and breadth in the products we support, with liquidity from over 500 firms pricing their clients via both API connections and manual FXGO screens.

We cover all major FX products: spot, swaps, NDFs, outrights, deposits and options, for regulated and unregulated markets. As a disclosed, bank-to-client solution we provided a distribution

development, managing the day-to-day business operation and collaborating with many other business groups who contribute to the success of Bloomberg’s FX product. This business is very much a team effort, and the growth we have engineered would not have been possible without the exceptional talents of my colleagues.

Our product is client driven, and given the tremendous changes occurring in the market, spending as much time as possible in front of clients is essential. That means a fair amount of travel, but it makes a world of difference to know your clients and develop meaningful relationships. This also includes consulting with central banks, regulatory authorities, industry groups and others, to gain first hand input and direct feedback to anticipate and develop for our clients’ evolving needs.

Bloomberg entered the FX market in 2000. How has the firm expanded its currency product set since then and what range of clients do you now provide FX services for?

Bloomberg’s FX product really began to gain momentum around 2006, when we were able to deliver many of the key fundamentals that FX professionals rely on – news, data, charting, analytics, execution and communication. The challenge has been providing innovative solutions across each of these areas, not just one, and for a diverse universe of users. As the product has continued to develop, our strategy has been to provide a complete end-to-end solution, from price discovery and pre-trade analytics, to execution, post-trade services, valuation and reporting.

Our target clients include global and regional banks, asset managers, corporate

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Bloomberg - offering access to the global FX community

mechanism for banks that complements their relationship-based e-commerce strategies, while providing best execution and robust tools for buy-side clients. For many banks, we are their only e-commerce solution, and can provide several execution styles, from Instant Bloomberg Dealing (IBD), to Request-for-Quote/Stream (RFQ/RFS), streaming, auctions, batches, algorithmic trading and confirmations for voice trades.

Trading over FXGO is commission free for both banks and buy-side clients, providing a powerful venue for banks striving to reduce transaction costs while gaining exposure to more than 325,000 subscribers globally. Finally, Bloomberg is renowned for its client support, available by phone and chat, with a live person, seven days a week, 365 days a year and in 17 languages.

Beyond that there are many other features that add up to make FXGO a compelling solution, like free, customizable and seamless STP, access to over 15 algorithmic order providers, or the ability to stage hundreds of orders from your OMS or via Excel. You can trade a variety of option strategies on a RFQ basis either hedged or live, or trade a wide range of commodities including metals, energy and agriculture. There is always something new.

Bloomberg is seen as synonymous with news, data and analytics. How has demand from FX clients shaped the development of the news services you now provide for them?

The FX markets are highly dependent on news and information and while

technology has facilitated a profound increase in content, the challenge now is how to process that information quickly. That is why Bloomberg created First Word for FX, to provide global market participants with real-time news and insights into the events impacting the currency markets.

Produced by a global team of financial market experts and journalists, First Word FX delivers 24-hour coverage of key economic, geopolitical, money flow and currency-specific news in a concise, digestible format. This design, based on input and collaboration from FX market participants globally, provides Bloomberg subscribers the real-time insights they need to make faster, better informed investment decisions in today’s volatile marketplace.

Bloomberg FX also leverages our global team of economists, who provide unbiased, real-time analysis on market-moving

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economic data and events, in addition to deeper insight and thematic outlooks on the drivers behind global foreign exchange markets. Virtual currencies have become increasingly interesting for many investors. What are your own views on the future prospects for Cryptocurrencies and how is Bloomberg positioning itself to take advantage of future developments in this space?

The evolution of cryptocurrencies has fostered a highly innovative mix of finance and technology, with the potential to play a variety of roles in the future of financial markets, particularly regarding payments.

In the case of Bitcoin, we have seen it endure scandals and wild price swings. As obstacles subside and regulatory clarity emerges, the market has come together to explore

the technology for its many potential uses, and there is definitely something to be said for technology that is faster, safer and cheaper than traditional payment systems.

Bloomberg recognized the need for better price transparency, and began displaying Bitcoin prices from various exchanges in April 2014.

We continue to track the development of the industry, both from an asset class as well as technology perspective, and remain intent on providing solutions that matter to our clients.

Some commentators have suggested that FX may be in cyclical decline as the market is currently experiencing reduced liquidity and unexpected volatility spikes. Do you agree with them or are we just going through a transitional period that’s related to the impact of regulatory reforms and a reduction in risk appetite by the big trading banks?

The markets are clearly undergoing significant challenges driven by a combination of the financial crisis, divergent economic growth, quantitative easing, and regulation. MIFID-2, changing capital requirements, and reduction in risk have all had a significant impact in many markets including fixed income

and commodities, and naturally this will spill over into FX. We have already seen the demise of many proprietary desks, and a movement toward agency models.

However, I think there are several factors that will breathe life in to the FX markets, notably the internationalization of the Renminbi. Where the RMB was previously restricted from use in the settlement of cross border trade and instead billed in USD or EUR, removing these restrictions will directly impact circulation with China’s active trading partners. According to the BIS, about 17% of China’s global trade is settling in Renminbi, compare that with less than 1% in 2009. With total trade currently valued at USD 4.4 trillion annually, this number could double over the next decade, driving the RMB to become one of the top four or five global payment currencies. This will lead to greater volatility and resurgence in FX trading.

FX is still under close scrutiny and coming to terms with the exchange rate manipulation scandal. What steps can the industry take to repair the trust that may have been lost?

The fixing process has been flawed in many ways for a long time. The benchmark was originally conceived as reference rate for mark-to-market of various foreign-denominated securities, not as a transaction

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rate. In order to minimize the tracking error with benchmark indices, asset managers also began insisting on trading at the mid-rate, which is all the more difficult in a fragmented, OTC market. Furthermore, attempting to net buyers and sellers during a 60 second window, across more than a hundred currency pairs is no simple task and invariably results in order imbalances. Banks acting as market makers have had to assume price risk without any compensation.

In some cases, unfortunately, that process became corrupted, and while there is agreement that the process needs to change, there is still disagreement in how some of the objectives will be implemented. The Foreign Exchange Benchmark Group sought feedback from market participants, and their recommendations were

subsequently approved by the FSB last year. Some of the items, like expanding the fixing window to five minutes, have already been implemented and many institutions are adopting an agency execution model and charging for the service.

However, while many firms are attempting build alternate fixing execution venues, none have gained any significant support from the buy side as of yet. Many firms have chosen to move away from the 4 pm fixing and instead use algorithmic orders to control slippage more effectively and improve best execution.

If market participants improve operational transparency, and enforce

comprehensive and clearly defined codes of conduct, such as the ACI Model Code, I think the industry will take positive steps towards restoring confidence. If they don’t, the industry runs the risk of ever increasing regulatory scrutiny.

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Bloomberg’s business model is built upon attracting subscribers rather than high-volume traders. Do you think the FX market is evolving in a way that will create more growth opportunities for the firm?

Our business model is clearly built around the Bloomberg Professional license and a comprehensive desktop solution, but that does not mean we can’t satisfy high volume flow. On the contrary, because we can provide such a wide range of solutions, we are a natural order staging and execution mechanism for some of the largest asset managers and corporations in the world.

In our case, workflow leads to volume, and the result is that we have become the leading multi-dealer platform on the street. The absence of fees or

commissions also makes our platform attractive to liquidity providers, and allows us to service both buy and sell side as a natural extension of their distribution networks. The firms that provide liquidity over FXGO are almost exclusively banks who are eager to provide liquidity to this pure, fully disclosed, full-amount platform. Our end-to-end solution, from idea generation through execution and settlement, is a very powerful proposition.

It is also worth noting that many firms are under considerable cost constraints, and as technology costs increase, there is clearly an opportunity to help clients consolidate their technology stack while increasing efficiency. As markets become more intertwined, our ability to provide multi-asset information and execution from the same application, using the

same network and connectivity is also very attractive.

Do you have your sights set at present on any specific regions of the world where you will be focusing efforts to increase Bloomberg’s FX footprint?

The emerging markets have been a formal part of our strategic planning for several years, and that investment has paid dividends, particularly in the Middle East and ASEAN regions. We have always felt that one size does not fit all, and tried diligently to provide local solutions that meet the needs of the local community.

No amount of data or fancy analytics will convince traders or portfolio managers to use your solution if it does not support their workflow and their market characteristics.

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On the other hand, with more than 325,000 subscribers globally, we are able to connect various emerging market participants with investors and liquidity providers in the developed markets. This maximises the value of our specialized market data, analytics and execution services.

We will continue to work with local regulators and central banks to ensure we understand how their markets operate and provide solutions appropriate to their needs. One such example is where Bloomberg won the

mandate in the Philippines for the onshore peso swap market. FXGO is used for execution and reporting of USDPHP swap trades, provides real time transparency for the central bank and local market participants, and then uses the data to calculate daily reference rates.

Looking ahead, what issues are likely to have most influence over your global FX business strategy in the next few years and what do you see as the most significant challenges to maintaining Bloomberg’s position as one of the world’s leading FX providers?

The proliferation of regulatory reform across financial markets is already having a dramatic impact on the FX industry and will continue to shape the sector for years to come. While a significant portion of FX products, including FX spot, remain outside of the regulatory remit for trade execution and reporting, there are still many changes that require workflow and technical solutions.

Since the majority of FX users are engaged in trading activities across the entire spectrum of FX instruments, it is critically important for market participants to have access to a unified environment where regulated and non-regulated FX products can be seamlessly managed from trade execution and post-trade processing perspectives.

Bloomberg FXGO has created an integrated platform to support trading of regulated and unregulated instruments with a seamless user experience and common technology for both liquidity takers and liquidity providers. By taking the lead in providing solutions for these market developments, we hope clients will see first-hand our commitment to innovation and value.

The Bloomberg SEF was the first Swap Execution Facility provisionally approved by the CFTC, and it has grown continuously across multiple asset classes to facilitate Required Transactions in IRS and CDS, and Permitted Transactions (without mandatory clearing), for NDFs and FX Options.

While we are still waiting for signs of an NDF clearing mandate, Bloomberg does offer NDF clearing services with several major clearing houses for clients who want to have their clearing connectivity ready well before the move toward a central counterparty. Bloomberg has also introduced services for FX derivative reporting requirements for EMIR (in 2014) and we have just extended our reporting framework to include new rules under the Monetary Authority of Singapore (MAS) and the Australian Securities and Investment Commission (ASIC), allowing our clients to fully rely on Bloomberg as their regulatory infrastructure backbone.

“Our business model is clearly built around the Bloomberg Professional license and a comprehensive desktop solution, but that does not mean we can’t satisfy high volume flow.”

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This regulated environment also highlights the increasing demand for process automation and the need for a centralized, advanced and comprehensive FX trading platform. To complement our suite of advanced execution tools, we brought to market our new Confirmation and Settlement Service, which provides fully electronic and automated confirmation, matching and settlement. The introduction of electronic post-trade communications between counterparties is designed to mitigate operational risks, improve cost efficiency and align with best practices for post-trade processing, including regulatory requirement for timely trade confirmations.

Going forward, we are fully committed to continuing our investment in regulated trading, reporting and clearing solutions across the globe, being both an infrastructure provider and thought leader.

What new FX products and services do you have in the pipeline that we can expect to see launched over the coming months?

We generally do not discuss our development projects until they are ready for release, but anyone familiar with Bloomberg knows we are never standing still. The foreign exchange markets are continually evolving, and we work closely with our clients to provide them

with the innovative solutions they require on both the global stage and in local markets.

One example is the recent launch of LiquiMatch, a flexible, all-to-all, anonymous pool that discretely matches buyers and sellers with no leakage of rates or amounts. Developed with Ogg Trading, LiquiMatch is a premium service that provides a variety of order types, and is designed to work in concert with existing FXGO features. We also remain very focused on regulated trading and reporting requirements, improving liquidity management, and bringing transparency and automation to less liquid segments of the market. The best is definitely yet to come.

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The Middle East region needs careful definition. The Arabian peninsula provides a useful guide, as it includes the Kingdom of Saudi Arabia and the Gulf states of the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait. Lebanon and Jordan fall within our definition. We can effectively exclude Syria, Iraq and Iran from our e-forex market for reasons of conflict and sanctions, while further north Turkey’s geographic location, economic and trade dynamics set it apart and beyond the Middle East region. Using this

as our working map includes a patchwork of countries moving at different speeds for a variety of different reasons though a unifying theme is the increasing growth of improved communications infrastructure and the inexorable spread of e-trading trading technology.

NEW TRADING AND INVESTMENT OPPORTUNITIESAbu Dhabi and Dubai lead the region simply because of their commitment to investing in infrastructure, building financial centres to attract, among

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Regional e-FX perspective on the Middle East


The Middle East region presents a mixed picture of accelerating growth in technology but slower development in product offerings. Richard Willsher investigates.

others, FX market players and their business and diversifying their economies. Significantly they are perceived as regional safe havens and places where corporates, institutions and retail traders can get their business done effectively.

“The UAE is turning into a regional hub for many multinational customers,” explains Zul Butt Citi Group’s Head of Markets Middle East, Pakistan & Egypt. “Most flows are either investment or trade related though there are plenty of individuals who are interested in

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REGIONAL e-FX PERSPECTIVE

more speculative use of FX.”

His colleague Yi Han Global product manager for Citi FX Pulse corporate platform adds, “It is increasingly clear to us that international businesses are using Dubai as a time zone base. We see a lot of corporate treasury visualisation occurring now. We are helping them manage their exposures not just for the Middle East but for the Middle East North Africa (MENA) region as a whole. There is a need for dealing between major G7 currencies




and also local currency exposures in Africa.”

This increasing role also spreads eastwards. “There are a lot of FX trading opportunities across the region,” says FlexTrade’s Vishal Kapadia, Vice President – Business Development in Mumbai. “The market is very easy to access for the G7 currencies and it is very easy to open up a business there. Places like Abu Dhabi and Dubai offer opportunities for trading firms in other Middle Eastern countries such as Pakistan and India who wish to trade but who cannot do so from their home territory for regulatory reasons. This is likely to increase as political situations across the region remain turbulent.”

Meanwhile significant changes in the local gulf market are

presenting new trading and investment opportunities according to Citi’s Zul Butt, “In the past when we spoke of the GCC (Gulf Co-operation Council)1 countries it was often oil related business, however if you look at the UAE now, only 36% of the GDP is oil related. We are seeing a tremendous amount of diversification happening in these economies. Governments have focused on developing retail, construction, leisure, financial services etc. Moreover there is also a large number of ex-patriot workers in the region. This has altered the nature of demand for FX services.”

Furthermore, in Abu Dhabi, NBAD’s Andrew Baxter, Managing Director & Global Head of E-Commerce highlights a variety of new or potential business streams. “Regional equity markets are opening up opportunities for international investors. From June 16th international investors can own Saudi equities directly via qualified foreign investor (QFI) status. Saudi Arabia is the

largest equity market in GCC accounting for 80% of market capitalisation of the region, roughly $560bn.”

He adds that Qatar and the UAE were recently upgraded to MSCI Emerging Market status, providing further catalysts and inflows and that the UAE market is becoming increasingly sophisticated with short selling via authorised market makers now permitted. In the third quarter of 2015 Nasdaq Dubai is planning the launch of single stock future.

“Whilst individually these may not drive huge FX moves, there will certainly be cross border FX flows and opportunities generated,” Baxter concludes.

Meanwhile from an ECN point of view, 360T’s Regional Sales

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“The UAE is turning into a regional hub for many multinational customers. Most flows are either investment or trade related though there are plenty of individuals who are interested in more speculative use of FX.”

1. The Gulf Co-operation Council states are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

Andrew Baxter

“The situation has changed dramatically with the corporate client base over the past few years, with many now using platforms for the majority of their vanilla FX requirements.”




Manager - Middle East and Africa, Alex Johnson says that beyond the UAE the markets to mention are Qatar and Saudi Arabia. “Particularly with everything that’s going on in Qatar with the World Cup and the infrastructure projects that are happening there. They have been slow to adopt and are behind the UAE but I see these as the next big growth markets. Specifically in Saudi Arabia a lot of the expats have gone and the banks are being run by young Saudis. They are looking for modern systems, which benefits us, whereas the previous generation who had been doing things the same way for 25 years were not so quick to embrace change,” he says.

In addition to this Samer Habbal, General Manager, Financial & Risk, Middle East & North Africa,

Thomson Reuters, adds that the introduction of e-FX platforms in the region is providing local firms with unprecedented access to both international and regional liquidity and is moving reliance away from local banks. “We are also witnessing a paradigm shift in sell side institutions as they increase the sophistication of their infrastructure to take on the demands of being a local liquidity provider in a more mature market. There is a great demand for affordable technological solutions that allow smaller regional banks to weigh up to their international counterparts by offering support for things like centralised branch requirements, auto-hedging outside working hours and distributing pricing via multiple channels,” he states.

However 360T’s Alex Johnson adds a note of caution. While

volumes have increased in the FX spot market, other business streams have taken a backward step. “One big change is that prop trading is down from what it was a couple of years ago. Some of the structured or more complex deals that people were talking about a couple of years ago have either reduced or disappeared. This is a bit of a global phenomenon with regulation such as Dodd Frank and EMIR coming in. In a sentence I would say that the Middle East has gone back to basics.”

BUY-SIDE REQUIREMENTSIf corporates and institutions may once have seemed wedded to their local banks and perhaps to voice trading this has now become virtually a thing of the past. The digital trading revolution has taken over and

Places like Abu Dhabi lead the region simply because of their commitment to investing in infrastructure




local banks have had to catch up.

“The secure presence of relationship trading as well as secure execution transaction capabilities have always been so important to the buy-side in this region,” says Samer Habbal. “With the introduction of electronic trading, buy-side requirements have evolved to also prioritise transparency of pricing, proof of best execution and growing internal regulatory requirements. It is audit requirements that have spurred on many larger corporates to adopt electronic channels as they can benefit from the full workflow solutions that are then provided.”

From his camp Alex Johnson agrees, “Where there were once a lot of voice brokers, this is no longer the case. Buy side clients used to prefer to speak with their house banks but I have a number of corporate clients that

have told me that their auditors have told them that they have to put in 360T, otherwise they will have to highlight this in their auditor’s report. Most of the big firms are forced to deal through a multibank environment but it is worth saying however that different e-solutions suit different clients. A large multinational with a variety of banking relationships is better off using a multibank system. A smaller local corporate with one or two banking relationships may be better off dealing with a single bank system.”

Providing a regional bank’s point of view, NBAD’s Andrew Baxter is candid. “Until recently the majority of regional banks and corporates preferred to transact their FX needs via voice and/or directly via the Reuters Dealing platform, this was particularly true when it came to the GCC currencies. This situation changed dramatically with the corporate client base over the past few years, with many now using platforms for the majority of their vanilla FX requirements. While Reuters Dealing and brokers still retain a sizable share of regional bank FX flows, there is a growing shift towards utilizing electronic trading platforms for FX needs.”

BROADENING SERVICESAnd it is on the basis of an increasingly broad range of services that the battle for clients is being won and lost. Merely executing transactions

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“Saudi Arabia and Qatar have been slow to adopt and are behind the UAE but I see these as the next big growth markets.”

Yi Han

“Many corporate treasurers are highly sophisticated financial people with backgrounds in finance. In terms of pre-trade they are looking for research, analysis and information to help with their dealing or hedging decisions. They are looking for more granular information in relation to particular markets. And they are looking for more sophisticated products beyond spot FX.”

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is not enough to retain their interest. Citi’s Zul Butt succinctly summarises the position, “Simple spot FX is not even a business proposition any more,” he says. “Everyone can provide

it. It is really about pre- and post-trade services.”

His colleague Yi Han explains, “Many corporate treasurers are highly sophisticated financial people with backgrounds in finance. In terms of pre-trade they are looking for research, analysis and information to help with their dealing or hedging decisions. They are looking for more granular information in relation to particular markets. And they are looking for more sophisticated products beyond spot FX. They are looking for a high degree of efficiency in reporting. They ask time and time again for post trade

capabilities, straight through processing (STP) and information flow to their enterprise resource planning (ERP) and treasury management systems. They are also looking at risk management and cash flow management and beyond this to balance sheet management.”

Thomson Reuters’ Samer Habbal says that e-FX solutions are enabling regional FX providers to step up and start providing streaming liquidity to their clients, via either single or multi-bank portals.

He adds, “They are now really able to challenge the international banks that have otherwise been leading the way in this region. As the FX market as a whole has seen a shift in focus from a margin business to a volume business, regional

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ADS Securities joined the market as an advanced e-trading player from the beginning.

Samer Habbal

“With the introduction of electronic trading, buy-side requirements have evolved to also prioritise transparency of pricing, proof of best execution and growing internal regulatory requirements.”

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banks now want to take advantage of the efficiencies electronic trading can bring. We are seeing them establishing trading desks that act less and less like an execution desk and more and more like a risk management desk having upgraded their infrastructure to support this.”

GROWTH OF RETAIL FXYet it is perhaps in the retail theatre that pre- and post-trade services come into their own to the fullest extent, because retail investors do not have ERP and other internal systems. Moreover it is retail trading where the most growth and activity is evidenced in the Middle East right now. It is also the arena where trading using mobile technology is most advanced.

In the Middle East as elsewhere in the world MetaTrader 4 is the dominant technology in use in the retail sector. FlexTrade’s Vishal Kapadia says that traders look for things like technical indicators, buy-sell signals, charting and analysis.

“Many of them are not very sophisticated. Some of them are making good returns though the risks they are taking may be quite large. Retail FX is marketed quite aggressively. There are a lot of events and conferences. Clients are given a platform to trade on and a credit limit of, say $2500 to start trading with.”

However, he adds that some retail fingers have been burnt. “The Swiss Franc disengagement from the Euro in January produced a lot of losses among traders in Dubai. Clients have become more conservative after that and some of the brokers are having a tough time getting people to trade. They are facing challenging times and it is only matter of time before some of them close or are taken over. Many clients are now looking to work with brokers or houses that are well regulated by a competent authority, so many of the




brokers are now trying to get themselves regulated.”

Abu Dhabi based ADS Securities is another leading business offering both Institutional and Retail FX services that has joined the market as an advanced e-trading player from the beginning.

“At ADS Securities we have developed and launched our own platform,” says Iskandar Najjar ADS’ managing director for the MENA region. “The UAE is in an almost unique position in that the region has the ability to invest in technology. It is also true to say that the market is looking for regional suppliers, companies that really understand how to develop the products and services that traders want. The UAE was the first regional market to introduce a derivatives exchange and the investment culture is developing all the time but Saudi Arabia and Kuwait for example, are increasing in sophistication. With the work that ADS is doing it is fair to say that the FX sector is expanding fast and is fully supported. We are currently working towards introducing a range of new products such as futures, options and forwards as well as an expanded range of contracts for differences (CFDs). With all these products we provide a very high level of customer support and education. Again the main developments will be

mobile trading and an increased range of products.”

SHARIAH PRODUCTSShariah compliant products represent Islamic regulation of financial services and they are in demand in the retail sector particularly.

Whilst NBAD does not offer retail FX trading in the UAE, Andrew Baxter does see demand for Shariah products although he notes that they pose unique challenges. “The nature of Shariah finance in the region and the lack of a standard approach to documentation provides significant challenges to implementing scalable e-commerce solutions, “ he

The unknown factor in the Middle East is the geo-politics

says. “Whilst cash products (including spot) can be traded conventionally, all other types of trades require a considerable amount of documentation to be in place. We are beginning to see attempts to automate

Iskandar Najjar

“The UAE is in an almost unique position in that the region has the ability to invest in technology.”




commodity Murabahah transactions but there is still work to be done before Shariah compliant FX can really take off. The Islamic market globally, and specifically e-commerce would benefit immensely from a standard approach to documentation such an Islamic ISDA.”

THE FUTUREWhether Shariah will become one of the growth areas for the future remains to be seen. It could happen. But what is not debatable is the inevitability of the future dominance of e-platforms to transact FX business in the Middle East region.

Alex Johnson says, “As an indication I am seeing the second and third tier banks in the Middle East looking at getting e-commerce people on board. I’m having conversations with some of these banks about white-labelling our platform. Where clients are demanding that these banks have an e-channel, the smart banks are looking at it. In fact banks that ignore e-FX do so at their peril. If you want to be a serious player in the corporate and institutional FX business you have to adopt it. Clients will say to potential new banks, if you can’t price me on the channel where I want to be priced there isn’t much point in us meeting. So I think the market will continue to grow and filter down to the smaller banks and corporates. And also people

are much more knowledgeable about the e-channels than they used to be.”

Samer Habbal summarises the factors that he thinks will shape the future of e-FX trading in the Middle East from a Thomson Reuters’ standpoint. “Connectivity, secured lines, regulatory reporting and the need for globalisation are factors likely to shape e-FX across the region. We see more local players becoming regional and then eventually international players, leveraging their trading relationships with other international providers to offset risk when required. We will see Middle Eastern banks establishing themselves as the place to go for GCC pricing as well as challenging international banks in the G10 space. Continued growth from the buy-side plus an increased demand for Middle Eastern liquidity due to foreign direct investment will be a factor.”

So while the Middle East has not been a leader in e-FX among the world’s regions, it looks likely to be one of growth over the coming years. Dubai is likely to spearhead this growth as it cements is position as a time zone hub, positioned for trade with Asia, European and also early-day US.

Regulation has already had a significant role to play and this is likely to continue, as with every other region of the world.

The unknown factor in the Middle East is the geo-politics. Will the spread of Islamic fundamentalism affect e-FX markets? Will Iraq and Syria take their places on the global FX map in the future? And will Iran’s huge wealth translate directly into e-FX business in the foreseeable future, following its apparent rapprochement with the US? These are unknowns but as it seems likely that there will be significant growth in international trade at some stage and that this will produce an interest in engaging with the global FX market in one way or another, then there will surely be further substantial growth in e-FX trading; the big question is, when?

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“There are a lot of FX trading opportunities across the region,”


In order to do this, they find themselves in an uncomfortable position where they have to take a CFD feed from one of the large retail brokers who currently have a stranglehold on this market. This means that small to mid-sized brokers are often having to put themselves in a position where they can be bullied by a competitor, their CFD provider.

IS Prime firmly believes in the concept of working as a partner to our clients, and it is with this in mind that we are announcing that we are developing an institutional CFD API to be offered to our broker clients, in conjunction with our market leading FX and bullion offering. The intention is to launch this product at the end of Q3 or beginning of Q4 this year.

Our partnership with ISAM, the most diversified systematic

hedge fund globally puts us in an unrivalled situation to be able to develop a product for which the market has been crying out for some time. Leveraging the global futures market connectivity already in place, we will be able to price pretty much any CFD on the most liquid futures contracts across the globe. It will also mean that we can provide CFDs on certain NDF currencies.

The product list will include:

• CFDs on Global Indices (eg. Dax, Dow, FTSE, Nikkei)

• CFDs on Global Commodities (eg. Brent Crude, WTI Crude, GasOil)

• CFDs on Bonds (eg. Bund, Bobl, Schatz)

• CFDs on NDFs (INR, CNY)

The academic skills and quantitative strengths that we have at our disposal in house coupled with ultra- modern technology will enable us to deliver very competitive bespoke pricing across the most popularly traded CFD products.

We believe that we will empower our clients with a differentiating product that will also enable them to break free from being handcuffed to their competitors.

We welcome enquiries from institutional clients who are seeking to develop their CFD offering and on a case by case basis will work consultatively to provide a truly bespoke product.

For further information please visit: https://www.isprimefx.comOr call us on: +44 207 258 9972

Are you looking to further develop your CFD offering?


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It has been our strong belief for quite some time that the CFD provider landscape is in need of a shake-up. There has been a focus amongst retail brokers in the recent past to try to diversify their product mix to include CFDs.

By Raj Sitlani, Managing Partner, IS Prime

091 IS Prime SS.indd 1 10/06/2015 14:47

Alan joined FXSpotStream 4 years ago before the company was created. A little over 4 months after FXSpotStream was formed, the service was live at its first site out of New York, expanding to London and Tokyo in the ensuing 3 months. Alan’s diverse background and experience over the last 24 years involving technology, consortiums, 3 prior start-ups (including ICAP/EBS backed FX trading technology incubator TXC and bank owned fixed income platform BrokerTec),

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FXSpotStream, a subsidiary of LiquidityMatch, was formed in late 2011. It is a bank owned consortium operating as a market utility, providing the infrastructure that facilitates a multibank API and GUI to route trades from clients to Liquidity Providers. We talk to their CEO Alan F. Schwarz, about the company’s ongoing expansion, key staff and future growth plans.

business transactions, and training as a lawyer have prepared him to lead one of the most innovative companies in the FX market today.

Alan, why do you think FXSpotStream’s unique business model has proved such a success?

It’s simple. Our business model solves a critical need confronting market participants – reduce the costs of execution. It eliminates for clients and reduces for banks

the costs of execution. And, the cost savings realized by the Liquidity Providers are available to the client in the form of a better price equivalent to that offered over a direct bank API. No other venue has the same business model we do and we have been leading the industry in reducing the high costs of execution.

FXSpotStream is structured as a utility. We do not charge brokerage fees to our clients or Liquidity Providing banks.

Meet the team From left: Matthew Berson, Alan F. Schwarz,

Mark Reeves, Tara Maw, Dan Smith

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MEET THE TEAM

We offer complete trading transparency in that all trades are bilateral, with fully disclosed counterparties. Clients benefit from accessing multiple global FX banks via a single API or GUI which reduces line and maintenance costs of multiple APIs. That means clients can go live faster as there is no need to test each API with each of their counterparty banks while the multibank aspect provides a pathway to best execution.

Has the business grown in exactly the way you expected so far?

Largely, yes. We have remained extremely focused on doing one thing at a time, doing that one thing extremely well, and growing the business incrementally. Of course, having started and been a part of several start-ups nothing goes 100% as you planned and the key is to adjust when needed, listen to your customer, and deliver what the user needs without straying too far from the core of the business. Consistent with our mandate, we have remained focused on the one thing that makes us different – a no brokerage, fully transparent utility service. And, the results speak for themselves. Volume last year versus the prior year grew 309%; volume first quarter this year vs the same quarter last year grew 92%; the number of new clients in May of this year vs May of the prior year increased 76%. And, the

service has proven itself as one of the most reliable, stable and state of the art venues available.

What steps have you recently been taking to add to the product range and services you provide?

We have a very supportive group of owners who are committed to our business model and along with our clients help shape the product roadmap. Late last year we added FX forwards on both an ESP and RFS basis while also adding FX swaps to the API as a request for stream functionality. In Q1 2015 we enhanced the order type functionality on our API by adding additional order types -- VWAP, IOCs (partials) and Slippage. We plan to add Limit Orders later in Q3. In June we launched a brand new html5 GUI that will allow both clients and banks to transact not only spot, but forwards and swaps over a multi-bank zero cost/brokerage service.

Who are the banks that have now joined FXSpotStream’s price aggregation service as Liquidity Providers?

When the FXSpotStream service went live in early 2012 we had 6 of the major FX liquidity providers: BofA Merrill Lynch,

Citibank, Commerzbank, Goldman Sachs, HSBC and J.P. Morgan. In a little under 3 years the number of Liquidity Providers has almost doubled with the addition of Morgan Stanley, UBS, BNP Paribas, Credit Suisse and Standard Chartered which joined in May as the 11th Liquidity Provider. We now have 10 of the top 15 FX Liquidity Provider banks as reported in the Euromoney Survey 2015. And we expect to add at least one more Liquidity provider before the end of this year.

Who are the key people in your sales teams that are working to drive FXSpotStream forward and expand its global reach?

“No other venue has the same business model we do and we have been leading the industry in reducing the high costs of execution”



Meet the team

We don’t look at selling in the same way as perhaps others do. For us sales is more about servicing the clients and banks that use our offering and ensuring that we provide them a high quality product. When we do that and form a strong relationship built on trust the “sale” is more of a natural evolution of the process. As a result we could say that everyone in the company is in sales – from the individuals handling client on boarding and connectivity to our operations and 24/6 global support staff to our sales personnel.

Some of our dedicated sales personnel include Mark Reeves, formerly eFX Sales at Deutsche Bank. Mark leads sales and new business in the Americas. Mark brings over 14

years of experience in FX sales, operations and client services. While at Deutsche Bank in New York and London Mark worked on the Hybrid FX Sales desk, offering both voice and eCommerce coverage for their institutional client base that include Banks and Systematic Hedge funds.

In May, we opened our London office and hired Antony Brocksom to lead sales and new business in EMEA. Antony brings over 15 years of experience in sales, client services, business management, product management and operations services across the FX and Prime Broker business having experience with a wide range of clients including Hedge Funds, Retail Brokers, Banks and Asset Managers. Before joining FXSpotStream, Antony was the Business Manager for European FX Prime Brokerage at Barclays. Prior to that he was the European

Product Manager for FX Prime Brokerage at JP Morgan. Additional sales hires are planned this year for London and Asia.

Who are some of the other key employees that have contributed to the success of FXSpotStream?

Tara Maw, CFO, has been with FXSpotStream since the firm’s inception. Consortium-owned and technology based firms are far from new to Tara as she held the CFO role for six years at BrokerTec, having joined during its early start up days. Tara also brings extensive operational, financial and accounting experience having spent eight years at one of the “big four” and five years supporting various trading activities at a large European bank.

We also have an extremely dedicated and hard-working technology, operational and

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In May, we opened our London office and hired Antony Brocksom (pictured) to lead sales



on-boarding team based in our head-office in Jersey City (just over the river from Wall Street), including Matthew Berson and Dan Smith. Matthew, who joined FXSpotStream in February 2013, leads our technology and operations efforts. Prior to joining us, Matthew was at Traiana for almost 8 years in a number of different roles, including project and program manager responsible for the Netlink product. Before joining Traiana, Matthew worked at a technology and content start up in a variety of operational client services roles.

Dan Smith joined FXSpotStream as the Client Onboarding and Support specialist in September 2012. Dan is responsible for the onboarding of all new clients onto the service and provides vital front line support

to FXSpotStream’s Liquidity Providers. He works closely with clients and Liquidity Providers to ensure all needs are met in both a pre and post live environment.

Looking ahead how will you be seeking to expand your offering still further with the addition of new products, functionality and liquidity providers?

Our philosophy is to continuously expand our core business across the globe and build the offering to address the needs of our clients and Liquidity Providers. This means growing the existing FX spot, forwards, swaps and precious metals offering, expanding through new client acquisition and increasing the number of bank partners providing liquidity on the service. In addition, we

are constantly moving into new geographic markets, whether this is in Asia where we currently have a robust footprint in Tokyo, Singapore and Sydney or expanding across other countries in Europe and into Canada. With regards to increasing our liquidity provision to our clients we have taken Credit Suisse live in April and have just announced our 11th liquidity provider in Standard Chartered which results in an in-depth cross section of liquidity from the biggest FX banks on the street.

After the successful launch and uptake of FX forwards and swaps over the API in 2014, in June both of those products were added to a brand new html5 GUI that will allow clients a choice as to how they receive liquidity and transact in a zero cost environment.


“It’s our 42nd year in business and Sucden Financial continues to go from strength to strength,” he explains. “As one of the largest Prime of Prime (PoP) providers, we believe that our heritage and the strength of our offering have helped us to thrive, despite recent challenging conditions in the market. There is no doubt that the Prime of Prime world is in the midst of change since the events of 15th January 2015. For us, it has presented an opportunity. It is becoming increasingly apparent that the larger, better capitalised and diversified Prime of Prime brokers are gaining increasing market share, and as such, we are feeling optimistic about our future growth.”

Wayne highlights five key changes post SNB events and explains why Sucden Financial is a key partner for medium and large brokers.

We are a multi-asset brokerage with a significant presence in futures, particularly metals and soft commodities. We believe there is still significant risk for those firms solely focused on FX, many of which could be at risk of losing their PB relationship, so it is important to have a backup in place. At Sucden Financial we have two PBs. Uniquely, we also have direct relationships with nine banks, further reducing our dependency on any one provider.

3. SPREADSAnother consequence of ‘Black Thursday’ is that FX liquidity provision is under scrutiny. Although underway for some time now, there’s been a redoubling of efforts to balance the volume versus value equation; bank liquidity providers are carefully considering who they stream liquidity to and how it is

View from the Top:Sucden Financial continues to grow


Wayne Roworth, Co-head of e-FX at Sucden Financial explains why the firm is in a stronger position than ever post SNB events.

1. COLLATERAL / BALANCE SHEETIt is widely understood that since the SNB event there has been an increase in the minimum balance sheet and collateral requirements from tier-one prime brokers. Sucden Financial is fortunate to be in a strong financial position that comfortably exceeds these new conditions. Potential clients cite this as a key requirement when choosing a Prime of Prime partner and more than ever we are being asked to demonstrate our financial position and provide our financial statements.

2. COUNTERPARTY PROFILEWe understand that some tier one prime brokers are reviewing their exposure to the entire retail FX market. Sucden Financial is a highly diversified company, meaning the banks do not generally categorise us as an FX broker.

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consumed. Since Sucden Financial operates in a clean and transparent way, our liquidity providers are happy to compete for our business, enabling us to offer our clients some of the tightest pricing available in the market. Combined with a dedicated liquidity management focus, the outcome for our clients is signifi cantly improved spreads, which equate back to early 2014 levels when volatility was lower.

4. PB COSTSAs PBs raise both their fees and margin requirements, we believe these additional costs will inevitably fi lter down to the clients of Prime of Prime brokers. Fortunately, Sucden Financial is in a fairly unique position as a PoP as we have so many direct relationships, enabling us to keep our cost base low because we do not need to give up every trade to our PB.

5. RISKIn the aftermath of the SNB move almost all FX market participants have asked the same question, “What could we have done differently?”

There has been a renewed focus on risk management systems that reside on the trading infrastructure. Low latency pre-trade checks, combined with intelligent instrument concentration rules are the main subject of conversation. As you would imagine there is a special focus on currency pairs that are not free fl oating.

Sucden Financial has been in business for over 40 years, with dedicated departments continually monitoring and managing market and counterparty risk. The fi rm has always taken a prudent approach to risk, which has led to solid, consistent growth over the decades.

Win an iPad Air 2


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In order to remain at the forefront of the industry, Sucden Financial has always listened and responded to market feedback. To gain further insight into how attitudes and priorities to selecting a liquidity provider have changed since SNB events, they are inviting e-Forex readers to fi ll out a short survey. To access the online questionnaire, simply type the following link into your browser:

www.sucdenfi nancial.com/PostSNB-survey

If you choose to fi ll out your name and contact details at the end of the survey, you’ll be entered into a prize draw for a chance to win an iPad Air 2.

With a history of over 40 years in the fi nancial markets, Sucden Financial provides clients with access to 100% STP FX and bullion liquidity. CFDs and futures can also be streamed via its API and clients benefi t from tailor-made solutions utilising the latest cutting-edge technology. Sucden Financial Limited is authorised and regulated by the Financial Conduct Authority. For further information, visit: www.sucdenfi nancial.com

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The last triennial survey from the Bank of International Settlements, the equivalent of a worldwide census for the FX industry, showed that one of the most conspicuous trends of the last 10 years continues apace – the growing participation of non-banks in the FX market. In fact, the survey, published in December 2013, showed that non-dealer financial institutions were the major drivers of FX turnover growth between 2010 and 2013.

The BIS suggests there are two underlying reasons for this growth. The first is the rise in international diversification of buy-side asset portfolios. Institutional investors and hedge funds are trading more globally in search of higher returns and they need to undergo Spot FX transactions as part of those trades.

“Over the past three years, equities provided investors with attractive returns and

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Filtering out the noise: Institutional FX desks move e-dealing and market intelligence onto a new level


Nicholas Pratt examines ways in which leading institutional FX brokers are leveraging their e-dealing platforms and market intelligence services to meet the needs of clients.

emerging market bond spreads dropped, while issuance in riskier bond market segments (eg. local currency emerging market bonds) soared,” states the BIS report. “Not only did this give rise to the need to trade FX in larger quantities and to rebalance portfolios more frequently, but it also went hand in hand with a greater demand for hedging currency exposures.”

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The figures from the BIS survey also show that these institutional investors are increasingly using FX prime brokers as their source of sponsored credit to carry out their Spot FX trades. This enables institutional investors to leverage alternative venue liquidity, order books and algorithms that source multiple prices to seek a standard of best execution that they recognise in other asset classes. Consequently there has been a greater adoption of e-trading

techniques and services where the use of prime brokers is highest.

“Prime brokerage has been a crucial driver of the concentration of trading, as such arrangements are typically offered via major investment banks in London or New York,” states the BIS report. “Prime-brokered trades accounted for 23% of total FX volume in the United Kingdom and the United States, against an average of 6% in Asian and other FX trading locations. In spot FX, the share of prime-brokered trades by US and UK dealers was even higher, at 38%.”

Surveys by analysts such as Greenwich Associates suggest that the use of the voice channel for execution has dropped significantly in recent years and the use of single dealer platforms (SDPs) is giving way to use of multi dealer (MDPs) platforms. Both Greenwich and the BIS surveys show that the use of order books (DMA) and trading algorithms has increased significantly from 2008 to 2013.

TRADING CONTROLAccording to Gary Stone, chief strategy officer at Bloomberg Tradebook, this trend has been evident for some time and can be explained by a number of different drivers, chief among them is buyside firms desire to take greater control over their FX activity. “Questions

that arose from the Calpers, New York and US Attorneys General lawsuits and FX fixing improprieties have resulted in a desire to take greater control over the trading and the rates institutions receive for their FX executions,” he says. “Institutions want to trade electronically because of the transparency, execution audit trails, time stamps and proof of multiple price requests in order to satisfy a developing recognition that FX transactions, at least at the institutional level, need to be subject to some sort of internal best execution requirements. In terms of the institutional investors in the FX space, all of these factors have come together.”

Consequently Stone has a seen an increase in the number of institutional investors using the Bloomberg Tradebook platform. He has also seen dramatic changes in trading behaviour over the past year. “There was a huge drop in simple execution – the Immediate or Cancel (IoC) taking of liquidity in favour of a using the order book and algorithms for more control and the ability to work the trade.”

A report by analyst firm Aite suggests that the number of users employing algorithms has risen to 20% and is projected to rise to 25% by 2017. Stone believes that this headline figure understates an underlying shift in the market in terms of trading behaviour among


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Filtering out the noise

institutional investors. “Surveys tend to focus on the top line algorithm usage statistic. There is a transition going on in the FX market. In order to allow an algorithm to totally control your trading – to execute a strategy against a benchmark - requires a lot of trust in the technology, and understanding of the market structure and the quality of the liquidity. There are a lot of intermediary steps that traders have to take to get to that point.”

This transition means progressing from request for quotes (RFQ) from multiple banks to dealing with different sources of streaming liquidity to order book. That evolution leads to DMA and the early stages of algorithmic execution such as a passive day order or ‘iceberging’ to giving the

computer the discretion to make judgements on liquidity capture on the basis of market conditions. It is a significant step to progress to the point where orders are worked entirely via an algorithm, says Stone.

“It takes time to get to that point - to arrive at a level of comfort and trust in the behaviour of an algo. Our usage data is showing that more and more traders are starting to, within limits, allow algorithms the discretion to ‘work’ orders. I think we will see that 20% figure continue to rise as traders gain a sense of trust.” BEST EXECUTIONClients are moving to MDPs, order books and algorithms as a result of best execution concerns says Stone.

“Institutional investors are facing a struggle, in part because of developing regulation and the desire to consistently apply internal best execution policies in other asset classes to FX. If they are dealing with a single source of liquidity, that may not serving the best interests of their investors. They may need multiple prices to demonstrate best execution and this is leading them to consider other technology and execution options beyond the traditional single dealer platform from individual banks.”

For those looking to create liquidity pools from numerous sources, the critical component is ensuring that the liquidity is equally suitable for both liquidity takers and liquidity providers so that both sides are happy to have transacted, says Stone. “A lot of the development we are seeing in platforms is aimed at addressing that need. We do a lot of work on pairing groups together with

Gary Stone

“For FX platforms to be successful, they have to balance the different needs and priorities of participants, from best execution to robust post-trade analysis tools.”

Source: Aite Group buy-side FX survey, Q

4 2014


Banks are offering different types of liquidity



SPECIAL REPORT

complementary profiles. You need good algos to examine the trading behaviour of the participants and to be able to react to this behaviour and also to police any trading activity that could be harmful to the counterparties in that liquidity pool.”

FX platform providers offer different services such as MDP RFQ, order books, aggregators and algos. Banks are offering different types of liquidity. “It is no longer about asking ‘banks do you want to interact with’; it is ‘what type of liquidity are you looking for’. Although they may seem like similar questions, it is a big shift. What type of liquidity are you looking for takes into consideration quantitative methods to help determine if the liquidity matches your execution goals.”

The need to find well-balanced liquidity pools is also part of a renewed awareness of the importance of relationships in the FX market, says Stone. “For FX platforms to be successful, they have to balance the different needs and priorities of participants, from best execution to robust post-trade analysis tools.”

It is a trend that Stone has observed elsewhere in other asset classes. “I look at the FX market and compare it to what we saw with the Nasdaq OTC stock market in the 1990s. There has been a similar

evolution and many of the current issues are similar to the ones we saw back then when the order-handling rules were introduced by the Securities and Exchanges Commission and electronic communication networks (ECNs) entered the market structure.”

Despite the rise of non-bank participants in the FX market, banks still have an important role, says Stone. “I think there is room for all types of participants in the FX market as long as you focus on what type of liquidity people are looking for. There is never a one size fits all for any market, including

FX. Technology will continue to evolve but we are dealing with a much more mature electronic technology than was the case in the equities market in the late 1990s. This means that the adoption of new techniques and the pace of change will take place much quicker. Institutional investors have been trading electronically for more than 10 years now and they are comfortable using it. However it should be remembered that the FX marketplace is OTC and different to an exchange-traded market so any evolution of trading behaviour, market structure or technology has to be mindful of this.”


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MARKET INTELLIGENCEIt is not just the institutional investors and other buy-side firms that constitute the growing non-bank activity in the FX market. There is also a greater presence of non-bank service providers especially in terms of trading and execution services. And as the competition in this section of the market intensifies, these providers are finding it necessary to differentiate themselves – some are doing it through technology and some are doing it through market intelligence – with analysis and data.

The provision of market intelligence is a relatively new development for many Institutional FX brokers says Douglas Borthwick, managing director and head of FX at Chapdelaine FX, a division of interdealer broker TullettPrebon. However they are potentially in a better position than many of the investment banks that dominate the FX market. “Banks’ FX desks are somewhat held back in terms of the sources they can access for market information. Many of them have limited access to Bloomberg or Reuters rather than the internet or Twitter. But increasingly the news that Bloomberg reports is first reported on Twitter,” he states.

However, while cutting and pasting a news headline may count as market intelligence to some, providing a filter and

an in-depth commentary is much more important to most institutional investors. “This cannot all be gleaned from the internet. The average age on FX trading desks has lowered over the past 5 years, now there are many dealers that have not experienced global recessions or Fed rate hikes. Adding context to the information is key, as is filtering out the news from the noise.”

The agency desk has a greater ability to talk about central banks or sovereign nations perhaps more so than a bank due to sensitivities or potential conflicts or implications on other parts of its business, notwithstanding the Chinese Walls that doubtless exist. It is easier to give an opinion on someone that is not a client, says Borthwick.

There is also a greater independence afforded to analysts’ views among brokers says Borthwick and this is recognised by their clients. “Institutional investors commonly use banks to support their core view and the brokers to challenge it. There is at times a herd mentality among banks and it is easier for a strategist at a bank to go with the common consensus. When

the bank produces a report at the beginning of the year predicting a Greek exit from the EU (Grexit), then the majority at that bank are likely to support that prediction for the rest of the year. But for a broker it is much easier to adjust a view overnight.”

In terms of trading platforms, there has been a glut of platforms that have catered for the vast number of agency desks in the FX market. But that number has gone down considerably as prime brokers have moved away from the traditional prime broker model, so the market has got smaller, says Borthwick. “It has gone from a plethora of new offerings down to five or six. For a platform to be successful, it needs volume. People are reluctant to choose multiple

Douglas Borthwick

“What institutional investors really want to know is whether their broker will be there tomorrow because there is a lot of technical integration and commitment involved when you appoint a broker.”

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platforms and they are reluctant to choose new technology. Often the same sales person is out selling a different platform every six months. That is not a sustainable business.”

BROKER SELECTION“The most interesting thing about Spot FX is that many people on the buy-side have discovered that FX is the only market where they cannot say they are getting best execution,” says Borthwick. “They will probably demand a price from a broker that they can then compare to the bank to get a benchmark of sorts. Most buy-side firms do not realise that they can get a better price from elsewhere. If that mentality exists, they will never get top of the book pricing.”

So what should institutional investors be asking when considering the appointment of an Institutional FX broker?

“They should be asking who the prime broker is and what is the track record? Is it in FX or is FX a side business?”, states Borthwick. “Our parent company Tullett Prebon has been in the FX business for over 100 years so it makes sense that we are in the role of an FX broker for institutional investors. But many of the other FX brokers in the space have only been around for a few years.”

Should investors be looking at the technology and has

the quality of FX platform offered by brokers become more important as part of this selection criteria?

The answer to these says Borthwick is that, “The technology is essentially a commodity. The platforms are all very similar. What institutional investors really want to know is whether their broker will be there tomorrow because there is a lot of technical integration and commitment involved when you appoint a broker. Many brokers have changed their prime broker multiple times or they have changed from agency to principal and back again. That said there are some technical traits which are important – the speed at which you can tailor liquidity to individual investors – can this be done on the fly rather than end of day. And whatever technology and integration exists needs to be flexible.”

BROKER SERVICESDespite the development of many Institutional FX broker offerings, some providers are keen not to overstate the extent to which they have influenced the market. Technology companies are producing evolutionary enhanced offerings but few revolutionary products that fundamentally change the way FX business gets done, says Joe Conlan, global head of FX for INTL FCStone Markets, LLC, a wholly owned subsidiary of INTL FCStone Inc. (“INTL FCStone”), who runs OTC FX sales focusing on Prime Brokerage & Execution services, which provides trading and execution services for multiple asset classes, including FX.

There has been a constant evolution from the first generation of ECN-driven platforms like EBS and Reuters through to the portal-based offerings of Currenex, HotSpot, Integral and First Derivatives;

Source: Aite Group buy-side FX survey, Q

4 2014

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then from the liquidity aggregators like Flextrade to TradAir, a technology which has been integrated into INTL FCStone’s offering and which Conlan describes as “automated FX trading in a box - connecting to all the earlier technologies to deliver a customised and consistent client offering”.The evolution of FX execution platforms has reached a point where most of the offerings available to institutional investors are of a similar level, says Conlan. “There are at least six or seven well-established platforms available for institutional investors to execute blocks of $1 million. Clients have been forced to expect Spot FX platforms to be very similar in look and feel, as well as liquidity. A technology like TradAir allows Swap Dealers like INTL FCStone to provide custom liquidity solutions to suit larger size deals and non-deliverable forwards (NDFs).”

There are still areas where more innovation is needed and will likely emerge in time, says Conlan. One such area is FX options platforms. “There aren’t many choices available at the moment. It is either voice-based trading or using a single bank platform. Also, FX forwards which are usually provided on an RFQ basis, should be moving to streaming prices in the near future.”

In the area of market intelligence, the provision of

research is still dominated by the banks, because becoming an official research provider brings with it additional regulatory requirements. “The reason why Institutional FX brokers are so valuable to hedge funds is the granular market information they can provide at times when there is a fast market,” says Conlan. “Although not ‘research’ per se – in the heat of the moment,

it might be the most important information to any trader.”

BROKER STATUSThe status of an Institutional FX broker is a crucial component when it comes to a buy side firms chosen criteria, but the selection process is not helped by confusion over the various terms used in the market. For example, ‘agency’ brokerage has become a popular term

Surveys by analysts suggest that the use of the voice channel for execution has dropped significantly in recent years…


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in the FX market but it is an inaccurate description for most liquidity solutions, says Conlan.

“There are some brokers that operate on a purely agency basis, that is when they

are trading on their clients’ behalf, disclosing the clients’ name(s) to the counterparty. By virtue of our regulatory status, INTL FCStone acts as a ‘cleared counterparty’ to each transaction, providing anonymity and a liquidity buffer to minimise market impact on large blocks and illiquid pairs. In this model, we agree to a price first and then cover the risk, without the need for lengthy ‘last looks’, painful rejections or 100 tickets to fill one order. Block exchange-for-physicals (EFPs) are a possibility.”

Even some banks are starting their own agency desks in a bid to attract more business.

For these new entrants, the prospects for growth will be partially dependent on their currency expertise, says Conlan. “For the major currencies it is possible to get orders filled without needing anonymity. However if clients are trading less liquid currencies that are increasingly in demand, like the Indian rupee, then execution would be better served through a properly registered entity. So the value of true agency brokers will be decreased for NDFs.”

In terms of the competition for institutional business among FX brokers, Conlan says that INTL FCStone is helped by its multi-asset offering and publicly traded status. “In terms of execution INTL FCStone uses several prime brokers to intermediate our client’s activity, so the client faces their prime broker and we face ours; so no settlement or direct counterparty risk. That along with our balance sheet gives a level of comfort to our client base.”

That said, there still may be some ambiguity or confusion around the different regulatory status’ of various operating brokers in the FX market, says Conlan. “A registered swaps introducing broker is not the same as registered swaps dealer. Swaps dealers’ compliance is governed by a different sphere of regulatory oversight with significant regulatory capital.”

Joe Conlan

“The reason why Institutional FX brokers are so valuable to hedge funds is the granular market information they can provide at times when there is a fast market,”

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we anonymously complete our client’s liquidity needs

For Liquidity Providers:One Designation Notice provides distribution to all of Chapdelaine FX’s clients – from ECN’s, Banks, Hedge Funds to Retail Brokerages.

For Liquidity Takers:One Designation Notice provides access to pricing from all of Chapdelaine

FX’s Liquidity Providers – from ECN’s, Banks to Hedge Funds.

Tailored Liquidity:Each liquidity feed is tailored to the exact specifications of our takers – whether the preference is orders-only, timely turn around time or a specific fill ratio.

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Get in touch today:

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Chapdelaine FX is a division of Tullett Prebon Americas Corp

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The FX market can probably never achieve the same efficiency as the equities and derivatives markets in terms of price discovery and price dissemination but new technology is enabling firms to get smarter at aggregating the fragmented pools of liquidity in the FX market.

The move to the electronic world brings with it a higher level of transparency; hence the reason HFT and other institutional clients are

demanding more and more competitive pricing, as well as visibility into a deeper market. Trading firms that are not able to dynamically manage their pricing and flow simply cannot compete, and will lose clients to the tier one banks and their single dealer platforms.

TradAir designs solutions that give financial institutions the ability to create new revenue layers and reduce costs, while enhancing and creating new client relationships using an end

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Are you looking for smarter and faster FX Liquidity aggregation?


Technology is raising the bar in terms of smarter ways to aggregate connections to the large number of trade venues in the FX market. Frances Faulds talks to three leading providers to see what solutions are available.

to end trading infrastructure from price creation and dynamic distribution to trading optimisation solutions. Illit Geller, Co-founder and CEO of the firm, says that while the major tier one banks are able to compete as they have invested heavily in intelligent pricing engines, the remaining 99 per cent of participants are behind. She says: “Banks who are unable to create their own unique prices using sophisticated pricing engine which are dynamic and enable algo and trade skewing

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TECHNOLOGY

capabilities will have a hard time competing.

Latency alone is not enough; and having the fastest aggregator feeding your clients is simply not enough; banks need to differentiate its pricing and dynamically manage it to gain market share.”

Regulation and compliance is also a major reason the market has to prepare with the right measurements and controls. These cannot be generated with old technologies or with less sophisticated pricing models. For example, banks need to be able to demonstrate their pricing engines will not freeze up when the market drops a few points.

PRICE CONSTRUCTION AND LATENCYGeller says the various factors that most influence price dissemination can be summarised into two main groups: price construction and latency. One price does not fit all; therefore price construction needs to incorporate a number of key factors. Scalability of the technology to support independent price construction, based on unique client characteristics as well as the ability of the technology to support multiple quote types and the flexibility of the technology to incorporate algorithmic capabilities and human interaction based on client, instrument and market

conditions. The ability of the technology to receive and disseminate over multiple client access points, providers and venues is also needed, as well as real-time data storage, analysis and benchmarking to maximise client satisfaction and returns.

Geller says: “Latency is always a key characteristic of price dissemination, ensuring the quality of pricing is maximised, delivering high hit ratios and client satisfaction. Minimisation of latency across the entire price creation and dissemination process is vital, including price discovery, processing and networking. High availability of the pricing irrespective of the client sophistication is imperative. Both the speed of API integrations as well as users accessing manually is important.

Too many solutions focus on one over the other.”

Various factors will influence a firm’s choice of liquidity aggregation solution but some of the key points Geller believes firms should consider are the latency between the pricing engine and the matching platform, not only for tick arrival speed, but also for receiving the driven data back into the engine. She also believes firms need technology that is flexible/personalized, to enable a continuous change in algos, filters, and other parameters, as well as new logic and workflows required to the provider to run a dynamic pricing engine, and have an edge. TradAir has a Big Data analytics and derived data to measure latency, P&L, providers hit ratio, decay, etc as well as neutrality in provider relationships and cost and the ability to build new things and deploy easily.

CHANGING FACE OF AGGREGATIONThe world of FX aggregation is a moving target, continually advancing with the market itself. Geller says: “Aggregation needs to advance with it, accommodating both sides of the trade to work well. It’s not just the normalisation of messaging, but programmatic

Illit Geller

“Aggregation has become more than just spot pricing. Solutions today need to provide liquidity providers with the ability to service their clients as they see fit, preserving competitive advantage.”




understanding of each liquidity provider/ client relationship, preserving value for both sides.”

On the one side, price makers require more sophisticated capabilities and feedback in creating prices with faster client adjustment and delivery methods, providing local matching capabilities and performance benchmarking - a key driver in adding value to the relationship. In addition, providing specialist local liquidity providers is differentiating in non G10 pairs.

On the other side, real-time data feedback into not only price normalisation but trade execution imperative, Geller says. “What you see isn’t always what you get, and understanding and programmatically adjusting in real time both views and execution patterns, work to optimise P&L and relationships,” she adds.

“Aggregation has become more than just spot pricing. Solutions today need to provide liquidity providers with the ability to service their clients as they see fit, preserving competitive advantage. Technology should not be limiting; and distribution of things like algos, research and pricing across a variety of instruments and tenors matter, and add value to the relationship.”

TradAir has focused on three key areas when it comes to

aggregation, advancement of algorithmic price construction and execution, latency and utilising the power of big data. Price construction and execution technology has advanced to incorporate the benefits of automated algorithmic capabilities blended with human interaction.

Just as the sophistication of the algos themselves are important, providing the toolsets necessary to interact with them, adjusting parameters in real time based user experience fundamental in delivering alpha.

AVAILABILITY AND SCALABILITYGeller says: “No one wants to miss a trade, and latency is always a key driver. In addition to the sophistication of the hardware and software, providing local price access equally important to both parties in the transaction, incorporating real time measurement and statistics. For our manual users, leveraging our partnership with Amazon cloud technologies has increased global availability and scalability while dramatically reducing latencies.”

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Trading firms that are not able to dynamically manage their pricing and flow simply cannot compete


Better Pricing,Better Fill Rates,Less Slippage,More Profit.SaaS-based FX... l Liquidity Aggregationl Pricing Engine l White-Labellingl Order ManagementONLY at TraderTools.

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TradAir has also partnered with Google to provide the power of real time big data to its clients. “As we fully support and encourage bespoke liquidity for our clients, each data set is unique. It’s also not just the client by client data storage that’s important, but the real time availability and analysis of the data that matters. This enables data to contribute to the algorithms, filters and workflows, allowing the technology to dynamically adjust price construction and execution process. This is also a key requirement for risk monitoring and regulatory and compliance reporting. We put everything at your fingertips,” she adds.

TRUE RELATIONSHIP PRICINGFor Yaacov Heidingsfeld, CEO of TraderTools, liquidity aggregation begins with what TraderTools refers to as ‘true one-to-one relationship pricing’. Heidingsfeld says: “We fully disclose which customer is connected to which liquidity provider, so that the liquidity providers are quoting at business that they want to win, and they are quoting at prices that they want to win that business at. They are able to tailor exactly the currency pairs, the spreads, and the sizes that are more frequently being traded by that customer so that the liquidity is truly tailor-made for that customer.”

Taking this to its next step, Heidingsfeld says that TraderTools has managed to create a liquidity pool, made up of ‘local’ currencies as well as alternative liquidity, from some of the algorithmic providers, in order to tailor the mix of liquidity for each particular customer. He says: “By doing this we are able to target a fill ratio for our customers of 95 per cent or better. Furthermore, relationship pricing leads to a higher fill ratio; a higher fill ratio leads to less slippage, because you are going back to the book less times, and therefore creates more profit, or more alpha.”

TraderTools’ smart order routing algorithm works by routing orders to the highest probable fill-rate. The company mathematically determines the expected execution price, based on the fill-ratio, and this is where it routes the orders.

Heidingsfeld adds: “There is a lot of talk at the moment about price wars but we don’t charge the banks for making prices into our platform to our customers. We believe that this entire debate about charging is really the secondary issue; it’s about where the best execution is. There is no such thing as ‘a free lunch’; if the customer isn’t

paying for it then the liquidity provider is paying for it. So if somebody is paying, where are you getting best execution?”

BEST EXECUTIONFor Heidingsfeld, the liquidity aggregation arms race is not just about getting smarter and faster. He believes that events in the foreign exchange marketplace over the past 18 months have changed the competitive landscape. The large bank liquidity providers have changed their risk profiles and are taking on less risk. “We see traditional liquidity providers looking to improve their bottom lines by cutting costs and stagnating innovation on their side, which is driving innovation to our side of the table,” he adds.

Yaacov Heidingsfeld

“More transparency is going to lead us to customers demanding the best fill and a standard method of being able to measure best execution is something the industry will start to focus on in the months ahead.”



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Leading front office optimizationsince 2010

[email protected] | +44(0)2036952383 | tradair.com

LONDON NEW YORK TEL AVIV

Tradair Ad.indd 1 09/06/2015 10:03



While speed is an important factor, Heidingsfeld believes the FX industry is close to reaching its speed ‘limit’ and the biggest aggregation platforms have got it down to single milliseconds, similar to what happened in the equity market. He believes that latency is more dependent on the hardware and the fibre than the algorithms. “Anyone who is going to survive has reached a certain speed. I think that ‘smarter’ is more the key today, and addressing the ‘liquidity gap’,” he adds. Sharp price swings have occurred because the market makers are looking at risk so differently again and Heidingsfeld believes that technology vendors need to focus at ascertaining the appropriate amount of liquidity to fill the order types that their customers are sending and how TraderTools does this is by making sure the liquidity providers know who the customer is, and their trading behaviour, rewarding fill ratio and routing those orders where there is the highest probability of fill.

He says: “As we continue to see this market evolve, we believe that there will be more restrictive credit conditions driving the marketplace and credit drives liquidity, so we need to match the appropriate amount of liquidity to the type of trading that the customer is going. It is all in the smart order router; making sure that order

execution is non-predatory from the perspective of the liquidity provider so we never sweep from the bottom of the book, or double-hit liquidity.”

Most liquidity providers are making cross-connects available in the major data centres in London, North America and Asia today and in most cases co-location can achieve a low latency environment, despite the fact there are still nuances of differences in how the liquidity providers transmit their messages. So for Heidingsfeld, the real challenge ahead is the

market depth being created for the customer’s trading behaviour. He says: “What should be driving decision-making is best execution and more and more participants are going to be driven towards more transparency and best execution. More transparency is going to lead us to customers demanding the best fill and a standard method of being able to measure best execution is something we are focused on as a company at the moment and I believe it is something the industry will start to focus on in the months ahead.”

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Banks need to be able to demonstrate their pricing engines will not freeze up when the market drops a few points.



TECHNOLOGY

TraderTools provides regular statistical reports to its customers and a new algorithm that the company put into production in Q1 of this year offers real-time updating. The execution algorithm makes decisions based on real-time feedback from the market.

The company has also added filters to filter out very large spikes in the market so as not to create false flags to ensure that the algorithm knows exactly where the market is trading before it uses it as a price indication for the market.

This adds a layer of logic to the pricing algorithm for the first time.

ORDER ROUTING GETS SMARTERsmartTrade’s LiquidityFX provides a packaged liquidity aggregation and smart order routing system with more than 70 connectors to various liquidity providers enabling users to improve hit ratios and reduce slippage while normalising the complexity of using multiple venues.

David Vincent, Chief Executive Officer of smartTrade Technologies, says that the demand for more intelligent and accurate pricing technology is being driven by clients and the need to manage risk and have better straight through processing capabilities. He says: “The FX market is moving quite fast, there are a growing number of different venues and greater choice in liquidity providers so the need for a global vision of the liquidity being proposed so users can create the right price, based on the best price they can get from the liquidity provider, is greater than ever before.”

According to Vincent, the starting point for any firm choosing a liquidity aggregation solution is to have the widest possible range of connectors to liquidity providers. Then, he says, latency becomes important – getting the maximum speed out of the system to connect to the market. Today, the FX market is down to a latency of a few microseconds, which is very low. This can be further improved by looking at co-location and managed services and it is becoming a necessary tool in the trading armour due to the need to connect, and have a relationship with, a high number of venues and liquidity providers. He says: “Once you have a solution in place, you will need to establish

David Vincent

“There are a growing number of different venues and greater choice in liquidity providers so the need for a global vision of the liquidity being proposed so users can create the right price, based on the best price they can get from the liquidity provider, is greater than ever before.”




connections to 20, 30, 40, perhaps 50 liquidity providers and this costs time and money. This is the reason why firms like smartTrade are offering a fully outsourced solution for co-location and connectivity to liquidity providers. This, today, is the best way to achieve cost effective low latency.”

FAST CONNECTIONSBut despite the growing sophistication of the technology in the FX market there are still barriers to achieving state-of-the-art liquidity aggregation. Vincent puts this down to the constant changing, and fast growth, of the number of venues to connect to. “This

is now changing nearly every month, so the idea is to have a very short time to market in terms of getting new connectors up and running,” he adds. The need to have very low latency to remain competitive still remains and there is still a great need for normalisation of all of the messaging used in the FX market. He says: “Even though there is some normalisation achieved by going through FIX there is still a lot of work to be done for all the different venues and the sensitivities to how others are going to expose liquidity.”

Furthermore, Vincent says firms must build all the tools to be

able to consume this liquidity. They will need GUIs, APIs and FIX connectivity in place if they want to integrate end-to-end with these systems, all of which is complex to write, as well as the need to ensure that the aggregation system is scaleable, and available and robust to remain fully functional in volatile times.

smartTrade is innovating and massively investing in Mechanical Sympathy to make hardware and software working smoothly together. Vincent says: “This is way we write our software within the architecture of the system we deploy. We also use a lock free approach to ensure ultra low latency performances, as well as working on some FPGA solutions to enable users to off-load some of the coding needed. Low latency price distribution is available even with many market data stream subscribers. Our LiquidityDistributor allows conflation of the market data stream in order to preserve system resources. Instead of having market data snapshots being sent at each market tick, the latest snapshots can be sent every n microseconds or milliseconds. The conflation can be applied to any user, any instrument and updated on the fly without interrupting the market data stream.”

Vincent says there are still improvements firms can make

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TECHNOLOGY

to their existing liquidity aggregation operations. Due to regulations and new market practices, all FCMS need to have the full transparency of all prices they can get from the liquidity providers and some systems do not have the link and the relationship with liquidity provider. smartTrade is connecting the liquidity providers to its clients directly so that the price that is coming from liquidity provider is the price that the smartTrade clients will get – there are no spreads, and smartTrade clients are guaranteed to get the best price from the liquidity providers.

“It is very important to have full transparency of operations because when firms do aggregation and are trying to achieve best execution, there is a need for reporting

and transaction costs analysis tools,” he adds. To this end, smartTrade’s Monitoring Viewer gives users a holistic view of all the different factors that can influence liquidity access, including showing where there is latency or data peaks in the global infrastructure.

FUTURE MEASURESAs IT improves, the application of new technologies to existing liquidity management and workflow will become crucial, as well as the need for flexibility to adapt to the uniqueness of each

relationship, in a transparent manner. Centralising systems across e-commerce, trading, sales and risk, and ensuring they are all working together, optimises liquidity, relationships and client service. TradAir’s Geller also expects that ensuring data and analysis are in place to feed back into the price construction and execution process will become essential, providing real-time input to algorithms, as well as automating compliance and regulatory requirements.

Going forward, TraderTools is also working with its customers to help them measure best execution and talking to them to come up with benchmarks that they want to measure to see how well it is performing. Heidingsfeld says: “As there is a lack of a standardised way of measuring best execution, to us, what is important is getting that customer feedback to understand what they are looking to measure and being able to provide them with the kind of reporting that makes sense in their environment.”

While a lot of this is historical, it is also about giving customers the ability to measure prices that are being made available to them, in real-time, and making that information available to both customers and liquidity providers, enabling the liquidity providers with the ability to compete with the business that they want to win.

There is no such thing as ‘a free lunch’ If the customer isn’t paying for it then the

liquidity provider is paying for it


It doesn’t really matter what Liquidity aggregation solution we use.

Some would have you believe aggregation is all the same, but it does matter which solution you use. There are commercial considerations such as whether the vendor charges LPs for making into the platform in addition to charging you or your clients for taking, plus monthly minimums, hosting and other items. There are connectivity

FX Mythbusters:Dissecting Liquidity Aggregation


By Rosario M. Ingargiola, President and CEO at Seabury FXone.

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considerations, both in terms of taking from LPs but also for making into other platforms and post trade connectivity, which can incur costs and affect time to market. Most importantly, there are factors regarding performance and features that if you examine closely will vary wildly from solution to solution.

There are no particular important features of a Liquidity aggregation solution.

There are too many to list here, but some of the most important features include dynamic, real-time liquidity management through a web portal where an administrator can add/remove individual LPs as well as apply unique spreads per LP and create custom streams and allocate them to particular client sessions. Equally crucial is the ability to define the way the stream is published. Specifically you need to set a minimum quantity to show at TOB, as well as define if the stream is aggregated with all equivalent prices shown as a single aggregated quantity at that price, or non-aggregated where each equivalent price is shown with its related quantity for each unique LP in the stream (anonymous or not).

It is also extremely helpful if LPs and new client sessions can be added on the fly without waiting for a restart. Another important feature is an internal order book that can accept resting orders with Time in Force of GTC or DAY. For example, resting orders may be matched against streaming quotes but can optionally be published to other clients as quotes that can be taken.

Liquidity Aggregation is the same thing as Smart Order Routing.

Smart Order Routers (“SORs”) are a completely different

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FX MYTHBUSTERS

primary liquidity have failed and there is still time left in the specified routing window. This allows attempting to trade with a marginal LP in the absence of any better LPs, improving the fill ratio.

Choice of FIX engine in Liquidity aggregation is not important.

When people think about FIX engines they often think about orders and trading. However,

functional component, though they are liquidity aggregation aware. Liquidity aggregation is really the creation of an aggregated order book for purposes of distributing pricing to clients (in some implementations especially for a buy-side use case, a simple SOR might be a client of liquidity aggregation). A good SOR will profoundly impact the performance of the liquidity aggregation platform as a whole by improving fill ratios, and it may not even route to the same LP that had the best TOB price a client is trying to hit with a Limit+IOC order, for example, if the price changed since the client order was generated.

The SOR has to know if the aggregated order book is set to use quote aggregation on prices distributed, for example, and if so, it cannot route FOK orders against aggregated quotes. Robust SORs also have a dynamic setting called a Routing Spread, where the SOR needs to know the spread on the published quotes from each LP so that it can consider routing against less favorable quotes that are within the slippage tolerance on the LP price.

Aggregation solutions should also have the ability to maintain quotes from certain LPs marked as “secondary liquidity” where the SOR can then consider routing to these LPs where appropriate but only after the maximum attempts to hit

reason, the choice of FIX engine is very important, especially if you are building an aggregated order book consisting of more than Top of Book quotes (some venues have 50+ levels).

Building a FIX engine that is higher performance than the commonly used open source versions is extremely non-trivial. Buying a solution off the shelf that is high-performance enough is likely to be commercially viable only for a buy-side firm serving their own internal needs and not scaling to serve a large number of clients. At the moment there are only a few solutions with a binary API for market data delivery distribution, but this will likely change over time.

Liquidity aggregation will end up being free.

Basic liquidity aggregation is already free, as long as you want it delivered as one size fits all. While building sophisticated, high-performance aggregation solutions is non-trivial, there are more off-the-shelf solutions than ever before. The solutions that add value and are worth paying for are the more dynamically configurable solutions with an advanced SOR that can make the most of the aggregated liquidity, besides being complete in all other areas such as web admin and reporting, execution algorithms, post-trade messaging and tick data capture.

it’s the FIX engine that receives market data messages from LPs and is responsible for parsing those messages and handing the resulting quotes and quote updates off to a high performance queue for further processing by aggregation logic that creates the consolidated book and the market data distribution layer. For this

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Taking a more centralised approach to risk management in retail FX brokerage activities


Retail FX brokers face a plethora of challenges on a daily basis as they navigate the risks thrown at them by the markets across multiple front-ends, servers, clearing relationships and client segments. With major events such as the Swiss National Bank (SNB) debacle adding to the strain and even causing the collapse of some companies, Heather McLean discovers why it is now more important than ever for brokers to improve control of trading systems and better analyse, manage and hedge customer order flows in order to avoid being blindsided by unexpected market events.

When talking about the main operational challenges facing retail FX brokers as they try to monitor risk across multiple front ends, servers, clearing relationships and client segments, Advanced Markets’

executive chairman, Anthony Brocco, states that the risks are really dependent on the business model of the broker. He explains: “In a legitimate STP-only environment, technology and accurate real

time information is paramount. Ensuring that your positions are always matched between your PB and your clients is the most important factor. Reliable seasoned technology has been the key to achieving that.

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Having technology that can monitor clients’ accounts in real time, that does a pre-margin check on each trade attempt that includes resting orders and has the ability to close out al of the positions in a timely manner if necessary are critical in protecting not only our capital, but our clients as well. It is also important that you have great liquidity behind the technology, which is why Advanced Markets works as diligently as we to do maintain ours.”

FACING TECHNICAL CHALLENGESPaul Jackson, head of sales at CFH Clearing, says one of the biggest technical challenges for brokers is managing the flow across multiple platforms and exposure in real time. He comments: “The simplest way to address this is to consolidate all platforms into one central location. If everything is in one place, updated in real time, brokers can be far more efficient and have a much greater understanding of their overall operations. It’s also more cost effective, with savings in terms of time, technology costs and staff headcount. In terms of people, finding employees with the right knowledge and skill set is an ongoing challenge. It’s important for brokerages to invest in their staff. Having the right people on board is key to the organisation’s success,” he adds.

Continuing, Jackson states: “More specifically, there are

a number of operational challenges that every broker needs to address in terms of monitoring risk. These include having the right systems in place to monitor margin levels/NOP limits, P&L and capital adequacy. Brokers also need to be able to identify client performance and trading trends across assets via multiple platforms and devise appropriate strategies as a result of this insight. Brokers are increasingly aware of their need to have automated risk controls including hedging rules, margin alerts and price notifications. They also need to comply with regulation and have a simple means of providing appropriate trade reports from trades made in all asset classes across multiple platforms. As the market has evolved, brokers are increasingly looking for additional revenue streams. Many have selected a second or third platform in addition to MT4 and the management of a multi-platform environment can create challenges. ClearVision from CFH Clearing for example, has proved to be extremely popular as it acts as a central hub, allowing brokers to integrate MT4, ClearPro, Tradable or any other platform all into one single location.”

Stanislav Stolyar, vice president of FX products at Devexperts, agrees that the main challenge is the lack of data centralisation. He states: “In certain cases this challenge is addressed by in-house legacy back office systems that act as a central data repository. The data floats from all platforms into the back office from various sources. Lack of automation increases operational cost. Another challenge is being able to run quick and accurate reports and data aggregations.”

While Andrew Ralich, CEO at oneZero Financial, adds: “As the complexity of the average brokerage environment increases, the challenge of maintaining consistent position keeping, reconciliation and liquidity management


FX BROKERAGE OPERATIONS

Paul Jackson

“A very clear message has come out of the SNB situation; if you do not have adequate risk management controls and a strong technical infrastructure in place, you are leaving yourself exposed to Black Swan type events.”

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procedures across multiple venues, geographical locations and LPs increases significantly. Without a centralised tool to consolidate this process, brokers will find it increasingly difficult to meet new market demands, and maintain the necessary internal processes to reliably manage risk.”

MORE EFFECTIVE FX RISK MANAGEMENT On what key FX risk management functionality retail FX brokers should look to employ, Ralich points to the Hub model. He explains: “[The Hub model] puts critical broker management features such as the ability to manage consolidated risk, price discovery, spread controls and A/B Book management into a single platform. By combining the functionality of risk management, OMS, bridge and reporting into one ‘universal adapter’ as the foundation for a retail FX infrastructure, the broker maintains consistency in their core functions while also having flexibility to deploy different front ends, and intelligently manage and control liquidity relationships.”

Jackson points to the ClearRisk component of CFH Clearing’s ClearVision product suite. This addresses the key areas that retail FX brokers should look to employ. He comments: “[ClearRisk] enables brokers to monitor client and hedge exposure from a single

dashboard and manage multiple books from a central location. It provides business intelligence so that brokers can search, assess and identify trading patterns as well as gain real time account information including P&L, pricing and margin utilisation. One of the key functions of ClearRisk is the ability to set trading conditions for different clients, which is hugely important in terms of risk management. For example, you can set hedging parameters by amount, by position or by percentage change, and can set different levels for different clients. The ability to have such a tailored approach is critical. With ClearRisk, brokers can also move clients across books at any time, without having to wait for server downtime or breaks in the market. They can also export data into their own systems for further analysis.”

Stolyar states: “Maximum flexibility in the execution engine decision making process is one of the key factors in effective risk management. To hedge or not to hedge? What is the maximum exposure that the broker is ok to keep for a particular book? Is it time to move a client from one book to another? The risk platform provides the means to help brokers react quickly to changing market conditions.”

Cyril Tabet, Partner and CEO at JFD Brokers and JFD Prime, believes that the key functionality needed is an efficient pricing engine. “Building an efficient pricing engine or ‘retail matching engine’ is key to the implementation of risk management order execution logics. Furthermore, it is important to recognise that sufficient budgeting should be allocated to collect and feed high quality market data into systems. Indeed, enabling a greater number of order execution gateways remains crucial for price deriving/offsetting, as well as for fulfilling other business-critical internal workflow requirements such as risk management,” he says.

Stanislav Stolyar

“Maximum flexibility in the execution engine decision making process is one of the key factors in effective risk management.”

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SNB WAKE-UP CALLOne of the greatest issues in the retail FX space over the past five years has been the SNB crisis, which made the ability to closely monitor risk absolutely key for retail FX brokers. Ralich says: “In many ways the SNB crisis has been a wake-up call industry wide to improve a broker’s ability to manage, evaluate and react to various types of risk, such as position and credit, in real time. This type of analysis, coupled with proven safeguards for rate management and off market execution, will be an essential for FX brokers to mitigate future periods of massive volatility.”

The SNB event has been a catalyst for change in the market, agrees Jackson. He comments: “It has shaken up the market and changed the PB space. It has made brokers re-evaluate their relationship with their PBs. With a diminishing number of PBs, the terms have changed, with higher margins and higher capital requirements.”

Jackson adds: “A very clear message has come out of the SNB situation; if you do not have adequate risk management controls and a strong technical infrastructure in place, you are leaving yourself exposed to Black Swan type events. Brokers are acting on this and seeking solutions.CFH Clearing has seen a real uptick in clients looking to come

on board. In fact, demand for our platforms and technology is at an unprecedented high since the SNB crisis as brokers focus on having stable, reliable liquidity, quality execution and high quality risk management solutions.”

Meanwhile, Brocco states: “The risk in the SNB crisis, just like many of the other market events that have occurred,

It’s important for brokerages to invest in their staff

Anthony Brocco

“You cannot expect the banks or liquidity providers to be there if you have continuously allowed only the most aggressive clients to hit them, which are generally the ones that the broker does not want to face themselves.”

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was a result of liquidity issues. Having good liquidity behind the technology is as equally important as the technology. The two work hand in hand and one is useless without the other. Advanced Markets is fortunate enough, after many years of formulating relationships and finding the right technology, to have put ourselves in position to protect us and our clients from risk as best as possible.”

During the SNB announcement, we had continuous pricing, says Brocco. He comments that clients were being filled during the entire move. “Being able to provide executable pricing during the event protected both us and our clients,” he adds. “Risk is really directly correlated to the environment and business model that you have in place. If either of those factors are poor, that obviously increases your level of risk.”

On the SNB crisis, Tabet comments that market makers had more control than STP users at the time. He comments: “B-Book brokers had much greater control over the execution process dealing on own their desk with less or virtually no real market exposure, unlike their A-Book counterparts. On the other hand, the only possibility for a true 100% DMA/STP broker to mitigate the risks of such a turmoil sits in the diversification of its offering, expanding the access to a wide

range of instruments including non-traditional liquidity (such as Equities, Commodities, ETFs, Rates, Bonds, Metals, Indices, etc,) preventing the overall concentration of the exposure over a limited number of instruments thus reducing any vulnerability to sudden changes in particular markets.”

Tabet also states that, “In the CHF turmoil and exceptionally volatile market situation, many brokers suffered business critical difficulties announcing insolvency or incapability to meet the regulators’ requirements for margin and debt. Such critical difficulties emerged from their inability to cover their clients’ negative balances, such as bad debt. On the other hand, thankfully JFD’s 100% DMA/STP liquidity and execution hubs remained uninterrupted and stable for business as usual, without any significant impact as less than 0.3% of our clients suffered from exposure to the CHF resulting into an insignificant amount of bad debts.”

However, Stolyar warns that a multifaceted execution strategy is required to ensure the safety of brokers and their clients if this type of issue should arise

again. He explains: “The recent SNB crisis has provided enough evidence that being a pure STP/A-book brokerage, even though this sounds good to clients because, among other things, there is no conflict of interest, in reality may be quite risky. Only a healthy mix of various execution strategies (A/B/C-books,) when used carefully can protect brokers and, subsequently, clients from massive losses.”

INDUSTRY FAILURETabet agrees that post-SNB event, the retail trading industry has been shaken up, if not the electronic trading industry as a whole. Yet that is a mark of the industry’s irresponsible behaviour in client management, he claims. “In cause, I do not see a lack of risk systems implementation

Cyril Tabet

“…a considerable share of any brokerage’s corporate profit should be reinvested in R&D, in-house or outsourced, for fuelling the pipeline of IT innovations…”

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but rather a clear lack of responsibilities from the vast majority of retail brokers attracting inexperienced investors to online FX trading at all costs (marketing promotions, educational programs, and aggressive sales tactics),” Tabet explains. “Retail front ends offering very limited number of instruments (mainly a narrow selection of FX pairs), unreasonable leverage (up to 1:2000 in several instances), unreasonable use of live trading account margins (80% and above), biased or vulgarised research (aimed at entertaining clients and triggering trades), etc led the vast majority of brokers to suffer from very high exposures on limited number of pairs, and for that matter on the CHF.”

He also believes the trauma [of SNB] affected all members of

the trading chain, from retail clients to tier one PBs and LPs, “Some PBs generated losses equating up to several years of PnL. The industry reacted by significantly increasing margin requirements, up to - under the most extreme cases - cutting off the relationships with some retail brokers, blaming their inefficiencies and lack of responsibility in addressing the retail market. By attracting and luring anybody to undertake unconsidered risks in the hopes of generating quick profits, the industry failed at safeguarding itself,” he says. However, that being said, Tabet says to protect brokerages and clients from future Black Swan events, brokers need to implement bullet-proof predictability models along with sound alerting system for early recognition of potential

turmoil conditions and filters for ‘bad’ quotes. “Again, a key to success is to diversify the range of products to limit the overall exposure over specific instruments, backed by world-class IT capabilities granting fully optimized high-performance-computing (HPC) and reliability-availability-serviceability (RAS). A considerable share of any brokerage’s corporate profit should be reinvested in R&D - in-house or outsourced - for fuelling the pipeline of IT innovations, that is precisely why at JFD we invest more in technology rather than in marketing,” concluded Tabet.

The SNB crisis has been a wake-up call industry wide

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MONITORING CLIENT BEHAVIOURIn their efforts to more effectively manage credit risk and other threats, brokers are now seeking solutions which enable them to set up automated rules to identify client behaviour. On this point Ralich notes that there are a number of powerful tools available on the market that can provide post-trade analysis and behavioural reporting. He comments that the key is being able to act on this analysis and quickly enact change to execution behaviours as a result. “With oneZero’s Hub technology for example, client behavioural analysis, consolidated position management and pre-trade risk and trade routing have been combined into one

central toolset. By leveraging a proven, scalable pre-trade risk framework with built in functionality for client profiling and execution controls, brokers can now assess client activity and react using a single system, rather than be forced to jump between tools to accomplish pre-trade and post-trade analysis,” he says. On the benefits of new analytical toolsets and dashboards for profiling customers and delivering views of real time and historic market risk, Ralich says: “Having historical insight into trading and market behaviours gives the broker the ability to customise their risk management and execution strategy based on criteria customised to their customer base. When this type of analysis is coupled directly into the broker’s OMS and real time monitoring systems, it provides an extra level of efficiency and flexibility.”

Jackson adds: “Analytics help maximise revenue opportunities and dashboards give greater visibility on changes in exposures. Ultimately, brokers can use these tools to stabilise their P&L swing and plan appropriate client strategies. In turn, this leads to better overall

execution and an enhanced customer experience.”

Brocco also believes that knowing your clients and their trading behaviour is very important stating that, “You must have a real time margin solution that pre-checks every single request to a real market quote and existing account margin tick by tick. It needs to be scalable and capable of handling massive bursts of information. I’ll stress that having technology that has been tested and used successfully in these situations is a must. Otherwise you will just be speculating as to what what will or may happen when the time comes.”

THE FUTUREIn light of the SNB debacle, FX technology providers are now providing solutions to help margin FX brokers more intelligently manage credit risk, deliver insights into their entire trading infrastructure topologies and avoid being blindsided by unexpected market events again. So what does the future hold?

Ralich states that the future of FX risk management will come from consolidated, core systems that operate consistently across a complex topology of front ends, back office and liquidity solutions: “The providers who are able to adapt their technologies to this [consolidated] model

Andrew Ralich

“In my opinion, the future of FX technology revolves around ‘Hub’ solutions, which blur the lines traditionally drawn between legacy pre-trade, post-trade and back office systems, into a single portal.”

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will usher in a new era of risk management across a variety of new client trading styles, tools and asset classes. It will be very interesting to see whether or not the providers who have traditionally focused on pre-trade systems can introduce the flexibility to handle the complex analysis needed to adapt quickly, or whether the post-trade focused firms will be able to scale their systems to adapt to the performance demands of real time trade processing. In my opinion, the future of FX technology revolves around ‘Hub’ solutions, which blur the lines traditionally drawn between legacy pre-trade, post-trade and back office systems, into a single portal.”

While Tabet comments that, “For smaller retail FX and CFD brokerages that do not have the IT development capacity in-house, Primes of Prime and third party technology specialists such as JFD Prime may be the only cost effective access point to high quality backend infrastructure coupled with hassle-free integration of non-traditional liquidity streams facilitating daily operations and control over risk management. Such third party offerings have flourished over the last five years, however for larger and more sophisticated brokers, building in-house R&D and IT competencies remains business critical as a long term

alternative granting far greater flexibility and control within an independent IT environment.”

LESSONS LEARNEDBrocco believes the SNB event has provided benchmarks for everyone to analyse how they performed. He says: “This holds from both the liquidity and technology standpoints. It will allow providers to analyse their specific points of failure and work to improve their systems capacity and functionality. Many technology vendors will be working to catch up with competitors, and others will be working to improve on what they already have in place.”

However, he adds that the emphasis is as much on the brokers as the technology providers: “If the failure was in liquidity, which again was the

case for most brokers, there is little the technology companies can do to improve this. It will be up to the brokers to ensure that they have the deep, consistent pools necessary and to manage those relationships accordingly. As you know, relationships work both ways and there must always be value and consideration to and from both sides. You cannot expect the banks or liquidity providers to be there if you have continuously allowed only the most aggressive clients to hit them, which are generally the ones that the broker does not want to face themselves. Liquidity was the main issue during the SNB crisis and if the banks feel like they have to protect themselves during these situations, then the broker is going to be unable to protect themselves or their clients.”

Brokers are increasingly looking for additional revenue streams.

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What technology solutions are available to help FX brokers to quickly deploy Binary Option trading capability?

Until 2 years ago, the only choice for Forex brokers was to white label a web-based solution from one of the many Israeli based software companies. We felt that existing FX brokers would not offer Binary Options if they could not be seamlessly integrated into their existing infrastructure, specifi cally on the MT4 platform. In 2013, TTFX launched the industry’s only true MT4 integration allowing FX brokers to launch Binary Options trading in less than 1 week.

What are the main technical issues facing more established FX brokers who are looking to seamlessly integrate binary options into their more complex web, desktop and mobile trading infrastructures?

For established Forex brokers whose primary platform is MT4, the main technical challenge is

to seamlessly integrate Binary Options into their current offering. The TTFX Binary Options solution integrates easily and syncs realtime across all platforms – MT4, WebTrader, Tablet and Mobile devices. Brokers can control all settings for Binary Options from a single backoffi ce system that applies to all the client trading interfaces ensuring a consistent trading experience for their clients.

How important is mobile technology in making binary options trading so popular and what issues should brokers address with respect to their existing mobile trading capabilities if they are looking to exploit the full potential of binaries?

Mobile trading for Binary Options trading continues to grow as clients are using their smartphones to handle more of their fi nancial transactions from banking, bill paying to investing. Binary Options trading is especially well suited to mobile devices as trades are short-term

Overcoming the technology hurdles when integrating a binary forex option platform

and the client only needs to select 4 criteria to execute a trade - the instrument, investment amount, expiry time and direction.

How much potential do Binaries offer for brokers looking to take advantage of White Labelling opportunities?

The white labelling potential of Binary Options trading is tremendous as many of these companies are looking to diversify their offering from their many competitors. The TTFX Binary Options solution allows a white label broker to offer Binary Options trading alongside FX on MT4, WebTrader and iPhone/Android apps. Binary Options also represents an additional revenue stream for the white label that is not correlated to FX trading.

What factors should infl uence a brokers choice of binary option technology provider?

We feel the most important factors are system reliability and transparency. As with FX, clients place a very high premium on system reliability. The TTFX Binary Solution is currently licensed by nearly 20 brokers whose clients execute tens of thousands of trades per day with minimal technical issues. In terms of transparency, our solution is based on “True Market Price” as clients can monitor and even execute a trade on the underlying instrument.


EXPERT OPINION

By Tim Brankin, Managing Director of TradeToolsFX

Overcoming the technology hurdles when integrating a binary forex option platform

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How has the SNB event affected the retail FX market?

TH: As a result of the SNB events, the bank Liquidity Providers have reassessed their risk and many have decided they aren’t happy with the return they get for the risks they take. As a result, a number have exited the space. With a reduced number of bank Liquidity Providers, Prime Brokers who use bank liquidity are fi nding it increasingly diffi cult to fi nd Liquidity Providers. This has had a knock on effect, leading to Prime of Prime Brokers struggling to fi nd Prime Brokers.

SNB events have changed the landscape completely. We will of course still have Prime of Prime Brokers moving forward – but they will only want large accounts, with large amounts of capital. I am sure there will be a lot of consolidation in this space as well as opportunities for the surviving Prime of Primes to grow signifi cantly.

As with all situations, the changes to the status quo have opened up opportunities for new players and we are seeing a whole wave of new entrants, such as IS Prime, who

are providing liquidity using their own capital. Whilst these market makers existed before, I believe we will see them playing a bigger role moving forward. They are ideally suited to this market as they are used to managing risk and high transactional rates.

For Gold-i, it also creates an opportunity as these new players require technology to manage their liquidity. We have seen a surge in demand for our Matrix product which allows brokers to aggregate in-coming liquidity feeds and offer their

SPECIAL REPORT

In the third in our series of Ask Tom features, e-Forex poses questions to Tom Higgins, CEO of Gold-i about the increasingly important role technology providers are playing in helping brokers to broaden their offering and manage their risk more effectively. For anyone interested in becoming a market maker, read on.

ASKTOM


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own liquidity out to clients. It also enables them to combine multi-asset liquidity into a single book.

Brokers seeking to become market makers need a bridge to integrate multiple Liquidity Providers. When selecting their technology partner, I would urge brokers to select a provider who has experience in integrating with multiple non-bank liquidity providers.

What tools are available to help MT4 brokers with risk management?

TH: I’ve always been surprised by how many brokers haven’t taken risk management practices seriously in the past. It’s been all too easy for them to make money. However, the SNB crisis has made brokers re-evaluate their situation and has put risk management at the top of the agenda.

One of the major reasons why so many brokers were impacted negatively following SNB events was because they didn’t have a clear overview of their clients’ trading activities and were caught out by the market change.

There is now no doubt that brokers need to invest in analysis and risk management tools. They need to understand who to cover and where to cover and plan appropriate strategies for different clients.

We have two products in our portfolio which help brokers with risk management. The Gold-i Position Keeper is a customisable tool which shows profit

To ask Tom Higgins a question in the next Ask Tom article, please email [email protected] more information, please visit www.gold-i.com

and loss and position in real-time, providing small and medium sized MT4 brokers with the level of informed data which is normally only available to institutional brokers.

In addition, Gold-i Visual Edge, aimed at hybrid A/B Book brokers, provides powerful visual analysis capabilities which are invaluable for planning appropriate strategies for every client.

Brokers across the globe are excited by this product as it provides a very clear view of which clients are making profits and which clients are making losses. Brokers can also see if the profits or losses are specific to certain types of trades or groups and how consistent these trends are over time.

Gold-i Visual Edge provides dealing desks and risk managers of MT4 brokers with unparalleled understanding of their

clients’ trading performance and this can help them to increase profitability by optimizing client trade flows. It is an invaluable tool and there really is nothing else like it on the market.

Gold-i is a world leader in trading systems integration. The company helps brokers to increase profits and trade more effectively

and its products and services address four key areas: risk management, liquidity, integration,

and hosting and server management.


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The Swiss franc and Russian rouble are benchmark events for FX trading firms weighing up their technology and infrastructure partners. Not only do currency shake-downs – as the rouble and franc have seen – drive home the importance of reliable connectivity and speed, to survive the subsequent fallout and bankruptcies requires a universe of counterparties. As macro events hit larger currencies, the developing economies who are exposed to

larger markets are also at risk of volatility. That can impact both local and international traders says Aleksey Larichev, head of business development at telco Avelacom.

“We see many companies in Russia, Europe and the US trying to move into emerging markets because the profits on common markets, such as the US and Asia, are shrinking,” he says. “They are exploring new venues. Dubai is growing

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Managed connectivity –the better way to access Emerging Market FX


Dan Barnes reports on how market volatility has made flexibility and control of connectivity key for FX trading firms looking to access and leverage opportunities in emerging markets.

pretty fast, Mumbai, Singapore and Johannesburg too. These markets are pretty new and while traders have technique they are not fully familiar with connectivity issues, connectivity possibilities and co-location things in those markets. Their main challenge is they don’t know how to set out the infrastructure so it stays reliable and so it fulfils their needs.”

As firms branch out into new currencies they look for a range

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NETWORKS, HOSTING & CONNECTIVITY

of counterparties with which to trade in order to access different liquidity flows whether retail, corporate and investment fund or single dealer platform (SDP). A widening of trading partners creates a challenge for the trader, who is facing more data, more counterparty information and potentially more currency pairs.

INCREASING FRAGMENTATIONAlexandra Foster, global head of strategy & business development at BT Financial Technology Services says, “Over the last few years new players have come into the market; it is less dominated by the interdealer brokers (IDB), and there are more local players to balance the larger international players. Consequently there is increasing fragmentation and technology has a part to play in aggregating liquidity. The interplay of technology with algorithms in the FX world helps that interconnectivity between the hubs, creating an aggregated view of what is happening across the market.”

Technology is also bringing increased sophistication into markets. A report entitled ‘FX Trading platforms models converge and competition heats up’ published in Q4 2014 by analyst house Celent, noted that “[A] growing number of servers [are being located] closer to local clients, especially in emerging markets.”

The historical model of locating servers in the main datacentres of London, Frankfurt, New Jersey, Chicago and Tokyo is being expanded out into markets such as Sao Paulo for CME and Reuters, Kuala Lumpur for CME and Singapore for 360T. The FX platforms expanding their geographical coverage are increasingly offering co-location services in these new areas, although Celent found the majority (56%) of platforms do not yet offer co-location at all.

However traders should not automatically assume that their hosting providers need to be hardwired to a currency’s national bank – smart connectivity providers know that local markets are only one source of liquidity.Jake Loveless, CEO at on-demand infrastructure provider Lucera, says, “The South African

Rand is my favourite currency, if for no other reason than it has such volatility. Now, you would think if you want to trade the Rand you really need to get a circuit in Johannesburg. But that turns out not to be the case. That client base is actually centred in London, you just have to find them inside those data centres, because they are trading the G10. Large liquidity providers have moved to where liquidity sources are. If you take NY4 for example, a single data centre in the New York metro region, there are more than 190 liquidity sources for spot FX.”

LOCAL MARKETSIn some instances local markets have less electronic trading, in others they might not offer the right sort of counterparty to a particular trading strategy.

Jubin Pejman, managing director of hosting and connectivity specialist FCM360, says, “Liquidity is still coming out of New York and London and while liquidity is coming out of Singapore, it’s not the kind of liquidity that our clients are looking at. I think it’s more of a commercial business as opposed to a retail business or single dealer platform (SDP) business. There may be a lot of business going on between Singapore and Hong Kong but it’s not the kind suited for algo traders and

Jake Loveless

“There is no alpha in running infrastructure.”



Managed connectivity - the better way to access Emerging Market FX

FX Brokers quite yet.”

The uneven level of services and accessibility to emerging market currency trading directly affects the strategies that can be run successfully from any given location. To ensure the right level of market access, a broad enough range of counterparties and reliability, traders must choose their connectivity partner wisely.

“A broker, for example, will have literally thousands of customers between Indonesia, Australia and mainland China, and it really wants to be in the right location so then it can start showing its customers that they don’t have to leave Asia to access the broker and its liquidity sources,” says Pejman.

FEET ON THE GROUNDWhen talking to a connectivity

provider about accessing a developing market directly, a trading firm should be sure they have feet on the ground, in order to avoid any unwelcome surprises, says Amar Vadher, head of technology at outsourced connectivity provider FXecosystem.

“When we have looked at regions around the Mediterranean such as Turkey and Cyprus, we send consultants to conduct due diligence in order to make sure that we are choosing the right locations for our customers,” he says. “That has instilled a lot of value for our customers. We have to account for

geographical issues, any seismic risks for example, and power supply as well as taking into account how clients are going to be hosting with us. We need to ensure that we have got all of the connectivity and all of the power that is possible, with local hands ready to support in these regions.”

A range of factors can impact trading into emerging markets, the

most obvious issue being a lack of consistency in the physical infrastructure and technology that might be encountered.

Michael Cooper, chief technology officer at Radianz, BT Global Banking and Financial Markets says, “You have got variance at an infrastructure level – the physical attributes around it – and also at an IT and a market level, all the way through to regulatory variation. There are different points in terms of maturity, sophistication and the standard of delivery across markets. While some developed markets have very much gone to a co-location model that’s not necessarily feasible in other locations – just basic communications and reach can be challenging. What you should expect from a provider is an understanding of: what

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Michael Cooper

“While some developed markets have very much gone to a co-location model that’s not necessarily feasible in other locations – just basic communications and reach can be challenging.”

A widening of trading partners creates a challenge for the trader

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is feasible; what the limitations are; any restrictions in the infrastructure layer; awareness of different regulatory positions; and the way the local environment operates.”

TECHNICAL HURDLESVadher observes that in some developing regions it can be very technically difficult to get connectivity from offices to a datacentre and then on to metropolitan areas in developed markets.

“We have had to redefine how to allow these clients to connect into the marketplace by providing a very small step of internet connectivity over a couple of feeds to their buildings, and then utilising low latency connectivity back to New York, for example,” he says.

The interaction between local market rules or laws and technology can also be a hurdle says Pejman, giving the example of mainland China, from where traders can find otherwise accessible corporate websites are blocked, preventing access to a trading interface.

The breadth of information and understanding needed can make the use of multiple suppliers for different aspects of connectivity, or development of connectivity in-house, more risky. Any gap in understanding, whether for a single provider or from a lack of coordinated information exchange, can create risks

for the trader. A more holistic approach, using a managed or hosted connectivity provision, can overcome those gaps.

Pejman says, “You can go to NTT or PCCW Global, someone that owns a good proportion of all the cable in Asia. You can go and talk to someone who specialises in low latency. However that stuff doesn’t matter as much anymore. It’s more about whether your partner actually helps you provide the service to your customer and gets the service right. You need a lot of moving parts brought together in order to actually execute the project.”

THE SET-UPThe options available to a trading house using a hosted connectivity service can be tailored to fit their specific needs. The simplest set-up only provides connectivity with the

trading firm placing its own equipment at trading venues and manages technology on its own. Proprietary trading firms that lack resources may prefer a slightly more complex structure.

Larichev says that a second option is for the provider to manage their equipment at the venues, however it is run by the trading companies.

He says, “For newcomers, like small high-frequency trading (HFT) companies we offer the ‘trading package’ which includes connectivity, equipment and network management. For example if an HFT company wants to go to a new market, they might want to have connectivity to a local circuit, servers installed and to have it by the end of the month with no investment. We do it on our own, sign a contract for an agreed period and we just leave everything for you to run as you need. If business doesn’t go well we just disconnect everything and move to a new trading venue with you. This way small companies can expand their geographical presence without any significant initial investment.”

Time is of the essence to traders and while low latency and speed of hardware installation are crucial, so is the ability to go live and hit the ground running

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Jubin Pejman

“Tokyo is the best place in Asia to have your primary hub from a technology perspective,”




with a consolidated set of services says Vadher.

“You need a single point of contact to liaise between all the different parties that are involved when it comes to setting up a platform to receive liquidity,” he says. “For example, when setting up a retail broker we provide them with fine monitoring of latency and more importantly flow. This gives a more detailed view of how we add value via our reporting mechanisms to these clients. They want to know when there is liquidity from two or three providers, who is turning their trades around more quickly and where geographically are the prices going to be coming from? Those sorts of services are really key benefits to using FXecosystem.”

COSTCost is of course a major concern – the increased regulation of sell-side firms is driving up their costs and is being reflected in charges for buy-side firms. A variety of factors can drive up trading costs. Increasing the grade of certain qualities such as resiliency and redundancy is more expensive, along with capacity and volume. However the cost of a suboptimal model – in an emergency – can be far more expensive.

Cooper says, “One of the advantages of our model would be that clients are able to access multiple providers and move between them relatively simply. Clearly if you have got

discrete communications to multiple providers then you have got an aggregated cost as a consequence of that and operational complexity as well. That is where there are unforeseen costs and where we do contribute to a better solution.”

Loveless adds, “You want to drive that cost of connectivity down as low as you possibly can. There is no alpha in running an infrastructure. Our clients’ legacy infrastructure were world class. But if you looking for bottom line impacts today you are looking at operations, at risk reduction and most importantly time to market and flexibility - and to do that you need scale and breadth.”

REGIONAL RECEPTIONThe optimal geographical positioning of infrastructure will depend on the markets

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Just basic communications and reach can be challenging.

Amar Vadher

“We have to account for geographical issues, any seismic risks for example, and power supply as well taking into account how clients are going to be hosting with us.”

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being traded. Asia represents an enormous geography with enormous variation in the regulations and infrastructure available.

“There are variants in the transparency of rule interpretation; the clarity of what you are able to do in some locations is better than others, but it also creates a volatility of sorts,” says Cooper. “The way some countries operate, is to go away and think about a question then come back with an answer and make quite dramatic changes. They also provide quite a local answer. It can be quite an intelligent response but it is likely to be different from place to place which means you need to be flexible in how you respond.”

Pejman notes that the TY3 datacentre in Tokyo will allow

FX brokers to offer services closer to their clients without compromising on the quality of infrastructure, but also to reach markets such as China from which it can be difficult to directly access markets such as the US.

“Tokyo is the best place in Asia to have your primary hub from a technology perspective,” he says. “It’s the best place to be in Asia because it’s the best way to get to the US west coast where the fibre drops are and major data centres with a lot of banking activity. Where clients are not able to get into a broker’s servers in NY4, the solution is to provide a better service. Put some of your equipment into Tokyo so that the snappiness or the optical experience the customer has is positive. Once they are in that hub in Asia we can take a client with a private line back to New York or back to London.”

Equally, if a trader wants to access certain currencies from a developed market, they may be better to look at local cross connects says Loveless.

Tokyo, Singapore and Hong Kong are already priced well into London,” he says. “That liquidity is readily available

there. A similar thing has happened with access to some Latin American markets such as Mexico. It used to be best to have a point-of-presence (POP) there but increasingly both liquidity providers and liquidity takers have decided it’s better to come to New York. For places like Colombia and Brazil, those players have tended to come to Chicago.”

CONCLUSION Whether operating from within or without the emerging market in question, there is no doubt that the fear of sudden volatility has created greater interest in the capacity and reliability of trading infrastructure.

Recent currency fluctuations have demonstrated the value that a managed service can offer in both flexibility and rigour, says Foster. “During the Swiss franc incident earlier in the year we were able to support our clients and help them to manage unprecedented volume spikes,” she says. “Having a managed service with BT meant that we were able to select the right infrastructure in order to flex up and down and meet the demand of those unprecedented volumes with our clients so that business continuity was maintained. That is something we can do in all geographies, and is an example of the importance of working with a strategic partner who has local capabilities but on a global basis.”

Alexandra Foster

“The interplay of technology with algorithms in the FX world helps that interconnectivity between the hubs, creating an aggregated view of what is happening across the market.”


1. WHY OUTSOURCE?Many banks and brokers simply do not have the in-house skills or resource to manage their connectivity 24x7 and understand that working with a specialist provides clear operational and cost benefits. The consolidation of many lines into one means that via our network clients can reach counterparties without the need and cost of leasing their own communications. We call this the FXecosystem Meet-Me-Room™ which delivers a single point of contact to connect to global FX banks, ECNs, vendors and buyside institutions, eliminating the need for multiple leased lines.

2. WHY USE A DATACENTRE?We have invested heavily in our datacentre infrastructure and working with us will provide instant benefit, as hosting trading platforms within the

same site or datacentre as the markets provides significant advantage over any company who isn’t co-located, in terms of physical trade speed. In fact, FXecosystem sends a FX price over its dedicated networks to New York and back to London in 65.14milliseconds (the blink of an eye is around 300 milliseconds).

3. HOW TO ACHIEVE CONNECTIVITY RELIABILITY? Reliability is absolutely crucial for our clients. We provide multi routes to market and have built a robust network which can suffer more than a single point failure and still maintain above SLA operations. Our network has been engineered to minimise the latency being introduced to all counterparties, without the loss of operational resilience. We monitor the lines and use

forensics when required to understand where flows are going wrong. The use of high end/ low latency equipment and advanced reporting methods allows us to provide detailed, real time analytics, granular representation of trade data and flow, along with advice on reductions for latency. Capacity can potentially create bottlenecks, so we identify when to allocate larger sizes of pipes to help to remove these obstructions. We monitor our networks 24x7 using real time software to ensure full reliability.

FXecosystem has built a reputation over the last five years for providing reliable, robust and scalable connectivity solutions. The company has an impressive client base which consists of all the major FX banks and financial institutions globally. For further information please visit: www.fxecosystem.com

Understanding the true benefit of outsourced FX connectivity


FXecosystem, a leader in outsourced connectivity services to the FX market, provides global FX banks, financial institutions, fund managers and retail FX brokers with enhanced connectivity and operational efficiencies. James Banister, CEO, FXecosystem discusses key factors to consider when deciding to outsource all or part of your connectivity requirements.

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147 FXEcosystem SS.indd 1 10/06/2015 14:54

Romael, when was Harmonic established and what services does it provide?

Harmonic Capital was established in 2002 by Richard Conyers and David Pendlebury as a London-based quantitative macro manager with the aim of generating returns by understanding investor behaviour to predict market moves. We specialise in fundamental spread-based trading strategies, producing returns that are uncorrelated to major stock and bond markets.

Who are the key people involved in the firm and what are their main day to day responsibilities?

Across the firm, Harmonic operates a collaborative and collegiate structure. This holds true within all departments and especially so within our research team. Our CIO Richard Conyers heads the Harmonic Investment Committee, and works alongside our deputy CIO Patrik Safvenblad and investment partners Per Ivarsson and Samir Sheldenkar.

Technology has also played a key role in our success - many of our systems are built in-house to provide catered solutions to our specific needs. These systems are built and supported by our team of developers under the management of our CTO Matt Bunch.

What strategies do you specialise in and what markets does Harmonic operate in?

Harmonic aims to produce returns in all market conditions from a portfolio of uncorrelated investment strategies. Our focus is on creating spread based strategies that are ‘market neutral’ with no beta to bond and stock markets. Harmonic currently trades liquid financial and commodity futures markets together with interbank currency markets.

What type of clients does the firm work with?

Harmonic’s clients are primarily institutions such as pension funds, banks and sovereign wealth funds. The North American institutional market is

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Harmonic Capital Partners –A focus on investmentstrategy diversification


e-Forex talks with Romael Karam, Partner at Harmonic Capital Partners LLP (Harmonic), an independent quantitative macro manager.


TRADERTALK

Romael Karam

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a specific target for expansion in the near term with a particular focus on public and corporate pension plans. We believe our macro and currency expertise is well suited to the needs of the North American institutional market and can be of significant benefit to investors.

What investment programs does Harmonic currently run?

Harmonic currently runs two investment programs – Macro and Currency. Both the Macro and Currency programs aim to provide absolute returns in all market conditions, at appropriate levels of risk. The Macro investment approach focuses on spread based

trading strategies in a broad range of liquid futures and currency markets. The Currency investment approach uses a combination of spread based and directional trading strategies in a broad range of liquid developed and emerging currency markets.

Unlike some firms who take more directional risks, Harmonic takes the majority of its positions in spread form. What advantages does this bring?

Spread trading means that strategy positions in an asset class are always taken versus another market in the same asset class (e.g. bond positions

are always taken versus other bonds). The portfolio can therefore profit equally in both rising and falling markets.

The biggest advantage of this approach is for the investor. This spread trading approach means that the program is designed to have very low directional risk at any point of time.

When using our program as part of a larger, traditional or alternative portfolio, this significantly reduces the concentration risk that often comes when combining the occasionally large directional exposures of directional macro trading with traditional portfolios. Spread trading also

Harmonic Capital Partners – A focus on investment strategy diversification

The team - from left: Alastair Smith, Per Ivarsson, Patrik Safvenblad, Samir Sheldenkar, Matt Bunch, David Pendlebury, Romael Karam

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TRADERTALK

reduces correlation with both traditional and alternative asset classes. In fact, we expect our strategies to be less than 0.2 correlated to a wide range of traditional and alternative benchmarks over the long term. Similarly, we believe that spread trading also makes our own portfolio construction more resilient. Since our bond trading has no directional bond exposure and equity trading no directional equity exposure, we expect to be unaffected by factors such as changes in stock-bond correlations.

A further important benefit is that we believe spread trading

enables more efficient risk management. We can reduce or close losing positions or strategies without expecting to have a negative effect on the headline portfolio risk.

How would you describe the investment principles by which Harmonic Capital operates?

Successful active management requires a disciplined approach to both alpha creation and risk management.

We believe we have a unique approach to alpha creation. Trading strategies are based on an understanding and careful analysis of pressures in the

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global economy. Our premise is that long-term investors will react gradually, rationally and predictably to changes in yields, exchange rates and risk among other factors. By modelling the behaviour of these investors, we aim to capture alpha as we position ourselves ahead of investor flows.

We understand that our strategies cannot be expected to capture all market moves or to be profitable in every market environment. Therefore, risk management is crucial to the long-term strength of our programs. Our most important risk management approaches include:

• Spread trading to reduce directional risks

• Close-to-equal allocation to markets and strategies to avoid concentration risk and over-fitting risk

• Absolute discipline when reducing exposure to losing positions and strategies

Since we seek to capture macro returns driven by rational investor behaviour, we believe our views are best expressed in the most liquid futures and FX markets. Being active only in liquid markets allows us to nimbly adjust position sizing in response to changes in risk and opportunities.

Many investment managers use pattern recognition or technical analysis as the source of their trading signals. What are the processes that are used to generate yours?

All traded strategies are based on easily understood economic mechanisms, such as ‘countries with strong equity markets tend to see appreciating currencies’. We then try to model the dynamics of this mechanism. In principle we ask a series of questions such as ‘How fast?’, ‘How much?’, ‘Does volatility matter?’, ‘What are the risks

to this strategy?’. The answers to these questions then form the basis for the exact model specification.

What frameworks have you developed to enable you to leverage your research in the most effective way in order to develop new investment ideas, alpha generating models and more robust risk management methodologies?

Our research process is based on a peer review process where all members of the research team provide structured feedback


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of all aspects of new research proposals. This allows us to stimulate the creativity needed to develop novel investment insight, while tapping into the significant experience of the team when testing hypotheses and when transforming the investment thesis in to a well-defined trading strategy.

All strategies are tested in our proprietary research environment which is used by all of the team and allows a large number of tests to be carried out efficiently.

Why is the way you allocate across strategies and markets considered to be a particular strength of Harmonic which differentiates the firm from many other macro investing managers?

We are different from most macro managers in the sense that our portfolio exposures are built bottom-up from a large number of sub-strategies. Internally, these strategies aim to be equally weighted with no one strategy favoured over another.

The main benefit of this approach is that the allocation to underperforming strategies and markets can be reduced without expected negative effects at the overall portfolio level. In addition, spread trading seeks to ensure that our strategy returns are ‘real alpha’ and not derived from hidden long bias.

Once you have developed ideas for new strategies how do you go about modelling these and testing them?

As part of our peer review process, all new strategies are subject to numerous predefined tests designed to ensure robustness (e.g. over time, across markets) as well as parameter stability.

The same tests are updated daily for live strategies. This allows us to identify situations whereby market environments have structurally changed. An example from recent years is that several strategies have become slightly more short-term as the market response has become faster.

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“While the key responsibility of the dealing team is best execution of all client trades, they are also responsible for validating the pre-trade data feeding into our models where we currently look at over 400 inputs ranging from price data to economic and yield data.”

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What are the key functions and responsibilities of the trading desk?

Our trading desk operates over three time zones, trading G10 and Emerging FX as well as futures contracts in bonds, interest rates, commodities and equity indices. While the key responsibility of the dealing team is best execution of all client trades, they are also responsible for validating the pre-trade data feeding into our models where we currently look at over 400 inputs ranging from price data to economic and yield data.

Another important function of the dealing desk is to monitor slippage and the costs associated with execution. The team provides valuable input into ongoing costs and how these might be reduced, to the benefit of our investors.

While we are systematic and employ absolutely no discretion in executing trades, the dealers provide a valuable human verification to ensure sensible data flows into the models and

work closely with the research team to validate proposed trades.

How did you go about building your trading desk infrastructure and what issues have influenced the trading technology you use?

The desk was built so that all dealers execute and monitor all asset classes, which often means trading several asset classes at the same time. Efficiency and accuracy is essential and therefore, over the years, technology has played an increasingly large part in improving the process and tightening controls. When an off the shelf solution has not fully satisfied our needs, we have chosen to build in-house systems. A good example of this is building our own FX order management system and aggregator which trades the majority of our FX flow electronically via bank API feeds. This allows us to maintain full control and opens the door to meaningful partnerships with our banks.

A further example is how we have chosen to utilise a hybrid approach to algo trading. We overlay relatively transparent algo strategies from our preferred vendors alongside our own in-house pre-trade analysis to determine the appropriate parameters. This is beneficial to us as it provides a fuller understanding of how the trade has performed when we analyse each trade using in-house built post-trade analysis tools.

Another key consideration is catering to the bespoke

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needs of our investors. For instance, certain markets and counterparties may need to be excluded for a particular mandate. Also, special reporting requirements are often demanded by sophisticated institutional investors. In all cases, Harmonic responds by tailoring its infrastructure to cater to the clients’ needs.

What post trade analysis do you perform and how does this add value to the dealing function?

Aside from periodically monitoring the quality of execution alongside the research team, the dealing team also analyses the quality of FX pricing, providing feedback to our panel of banks on a quarterly basis providing granular detail which gives our dealers a

thorough understanding of market pricing, improves our relationship with banks which in turn improves the quality of pricing benefiting our clients. On a regular basis, we also monitor the quality of the data that we use, market liquidity and how this relates to our trade sizes and capacity.

Many investment managers have experienced difficulties for one reason or another since 2008. How has Harmonic performed over the last few years and what underlying factors have influenced this?

There has never been an easy period for active management and the period from 2008 is no different. The global economy has faced numerous challenges over the period; the 2008 fallout and Eurozone crisis are just the tip of the iceberg. From

the perspective of a macro trader, these developments are equally risks and opportunities.

Our strategies have had challenges, but have overall performed well in a period that has been challenging to traditional directional macro managers. Our flagship offering, the Harmonic Macro program, performed well in 2008 and generated positive returns in the period from 2008 to 2014. The key driver behind this positive result is that we have seen significant economic divergence across countries. This divergence spills over into profitable spread trading opportunities. Looking forward, we see good chances of further economic divergence as the global economy adjusts to the recent fall in oil prices (good for Sweden, bad for Norway) and rally in the US Dollar (good for Europe, bad for the US).

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