FastMatch has launched a consolidated tape for FX in a bid to bring more transparency to the market.
Speaking exclusively to Profit & Loss about the new venture, FastMatch CEO, Dmitri Galinov, explains that any type of FX market participant is welcome to contribute to the new tape, subject to certain stipulations.
The first such condition is that there is a minimum requirement of $2 billion per day in notional volume for those wishing to contribute to the tape. Contributors must also sign a contract with FastMatch confirming that they own the rights to the trades that they are submitting to the tape and agreeing to independent audits of the trades being submitted.
This contract also outlines the economic benefits of contributing to the tape, essentially stating that 50% of the net revenue generated by the tape will be shared amongst the contributors on a pro-rata basis, dependent on how much notional trade volume they submitted to the tape in that calendar month. This net revenue will exclude amortised start up and ongoing operational costs for running the tape, which are capped at $5 million per year. If a contributor is also a FastMatch participant, the contributor data revenue will be offset against trading fees as a credit on the bill.
Describing how the tape itself will function, Galinov stresses three key features: the data displayed will be aggregated, anonymous and delayed.
“Once FastMatch receives the trades from contributors, it will aggregate them and then every 500 milliseconds it will calculate the total size of the trades submitted, the value weighted average price (VWAP) of the trades and the number of contributors that submitted trades in that half a second,” he says.
This means that subscribers to the tape will be able to see the date/time stamp, the currency pair, the VWAP, the total size and the number of participants that contributed to the tape every 500 milliseconds.
Firms can submit trades in binary or FIX format and FastMatch plans to validate the data to exclude off market trades.
Importantly, contributors to the tape are not required to submit all of their FX trades, but can pick and choose which ones they want to contribute.
“I think that there are some trades that shouldn’t be contributed to the market,” says Galinov. “For example, if you have a very large trade for an illiquid currency pair, then it might not be helpful for the client to report that trade in real-time because it might generate an adverse market movement. But most of the trades in the market are in smaller and more active pairs, and I can’t see any problem with contributing these trades.”
A historical database will be available that will contain the same fields of information as the real-time feed. This data will be published with a one week delay and clients will be able to access it via HDF5 flat files or via vendors.
In terms of distribution, market participants will be able to access the tape via several different channels.
The first is via Euronext’s distribution channel, which plans to add the FX tape to the suite of market data products that it already sells to clients. This is one reason why the deal for Euronext to buy FastMatch that closed in August made sense for both parties, the former gets a new product to sell to its clients and the latter gets to take advantage of Euronext’s distribution channels and larger sales force. Euronext also has a mobile application, meaning that subscribers will be able to access the tape via their mobile devices, if they wish.
The tape will also be accessible via the FastMatch website, it will be available for free, but with a 15-minute delay, or on a real-time basis for paid subscribers.
Subscribers can also get the data directly from Euronext and FastMatch on an API but, because this is faster than the Euronext distribution channel, the data being published on this channel will be subject to an additional 200 milliseconds. This will ensure that all subscribers to the tape receive the data at the same time.
Potentially, the tape could also be accessed in the future via any software vendor, broker, bank or exchange that signs a data licensing agreement with FastMatch.
The fee structure will see retail – that is to say, non-professional – FX market participants accessing the tape via a GUI charged €45 per user per month. For professional FX market participants using a GUI, this fee rises to €250 per user per month.
For real-time API consumption, the price depends on how many applications within the firm will be using the data from the tape. The initial fee is €10,000 for one application, and can get as high as €30,000 if more than five applications are using it. The historical data will be charged at €10,000 per firm.
Contributing to the tape at launch will be banks, brokers and non-bank trading firms, although Galinov does point out that none of the initial bank contributors are what would generally be considered the top tier banks in the FX market.
“The top tier banks won’t be the first ones to join, but I think that as the tape grows in size and revenue that it will become too big to avoid and so they’ll join later on,” he predicts.
Galinov says that in order for the tape to have real value to market participants, it needs to exceed $100 billion in notional per day. It’s at this point, he predicts, that the tape could start generating revenue.
To this end, FastMatch will be making the tape available for free until the end of this year, and Galinov hopes that this will help ensure that going into 2018 between $100-$200 billion in notional volume is being submitted to the tape each day.
Eventually, the plan is to add NDF, forwards and even cryptocurrency market data to the tape, but for now Galinov is concentrating on just making the launch a success.
“Where we want to end up is with a tape that can be a market standard, because we feel that this will make the FX market much easier and less risky to operate in. If we achieve that we’ll be very happy,” he says.