Integral has partnered with Jefferies to launch a new liquidity network called TrueFX, which aims to leverage the former’s technology and the latter’s credit intermediation services to reduce trading costs for buy side firms, which includes retail brokers, macro hedge funds, prime of primes, and regional banks.
Essentially, the aim of this initiative is to provide buy side firms with direct access to FX liquidity through a single point of credit intermediation and technology integration. So market participants will be to access liquidity provider on TrueFX via a dedicated Integral connectivity network and either a direct credit relationship with Jefferies FX prime brokerage (FXPB) or a relationship with a client of Jefferies FXPB.
“Jefferies is acting as a classic PB, except we’re bringing over many of their PB customers and Integral’s customers to co-exist within the same PB environment at the same time. This means that customers who transact against each other on this platform aren’t leaving it to settle with third parties, they’re all settling with Jefferies,” Harpal Sandhu, CEO of Integral, tells Profit & Loss.
He adds: “Since they settle against Jefferies, the PB costs are a fraction of what they would be if they had to meet in the interbank settlement market. By coordinating our efforts and having everyone meet and transact in same place, the PB costs and technology costs are much lower.”
Sandhu says that liquidity providers will be able to pass on some of the savings from these lower PB costs to customers in the form of tighter spreads. Meanwhile, Integral is offering its technology to the buy side at no cost. The net effect of all these cost efficiencies, he says, is a reduction in explicit and implicit trading costs by between 50-70%.
Another reason why the credit model being deployed around TrueFX can benefit market participants, according to Sandhu, is that it eliminates the minimum per-ticket charge required by some PBs.
“Importantly, there will be no per-ticket charge. The reason why this is important is that buy side firms that don’t want to be holding risk have had a big problem until now because a lot of the PBs have a minimum per-ticket charge. This meant customers either had to pay an exorbitantly high per-million charge or they would hold onto the risk until their position was of a large enough size to then submit the larger ticket to the PB,” he says.
Sandhu continues: “In the TrueFX model, because of how it’s built and the netting technology that Integral has contributed to the effort, there is no restriction on ticket size. Customers can submit millions of small tickets and not have to deal with that problem anymore.”
Meanwhile, Brandon Mulvihill, global head of FXPB at Jefferies, comments: “The flow of credit is the lifeblood of the FX market, but market inefficiencies have stalled accessible and affordable credit for many market participants. We are excited to play a pivotal role in addressing this challenge via TrueFX and to collaborate with an industry-leading team at Integral to make this happen.”
TrueFX will allow firms to trade on a disclosed bilateral basis and give up that trade to Jefferies, they can trade on a tagged basis, they can do so anonymously, or on a CLOB mechanism. Sandhu also says that soon users will be able to trade at mid-point. Right now firms can only use TrueFX for spot trading, but Profit & Loss understands that the plan is to add outright forwards, swaps, NDFs and the full gamut of derivatives products.
Although TrueFX runs on the Integral technology platform, Sandhu says that it can be connected to any other platform.
“If people have other OMSs, EMSs, or other products on the front-end, we will integrate to all of them and we’ll integrate people’s back-end pricing engines, regardless of whether it’s Integral or not. We’re really not restricting this in terms of technology and integrating with other firms,” he explains.
Similarly, other credit intermediaries besides Jefferies will be able to join the network, and in fact there will be a designation called a TrueFX Clearing Member (TCM) for firms that will offer their services by providing sponsored access to the TrueFX liquidity network.
When pressed on who owns TrueFX, Sandhu explains that it isn’t a formal entity but rather a coordinated effort between Integral, which runs the technology, connectivity and matching, Jefferies, which provides all the credit intermediation, and the liquidity providers, who are directly making prices and liquidity available to the buy side on either a fully disclosed or anonymous basis.
Incidentally, this isn’t the first time that Integral has launched a product or service under the name “TrueFX”. In 2009, as Integral made a push into the retail FX space, Profit & Loss reported on the launch of its TrueFX product, which provided tick-by-tick historical and real-time market data free of charge to market participants, as well as access to clean, aggregated dealable pricing from the interbank market.