In 2010 the FX Pure initiative was launched, which recognised that there were participants in the market that were getting a systematic advantage by using platforms that allowed them to get an advantage just by being fast.
In addition, there were a number of other factors that formed an important part of the project; trading and pricing transparency and creating a trading platform with fairness and equality at its core.
In 2013, the FX Pure initiative resulted in the launch of ParFX and now, almost 10 years on from the original inception of the idea, Roger Rutherford, the COO of ParFX, insists that the model and its underlying principles are as relevant today as it’s ever been.
“We were designed by the banks, and the model that they created is still differentiated and relevant today,” he says. As a result, Rutherford says ParFX has resisted the urge to change elements of the platform “for the sake of change”, and that the continuity of the platform is one of its selling points.
“Many other platforms are constantly tweaking around the edges. Someone makes a change, someone else copies them and they end up chasing their tails – suddenly you’ve got direct models comingled with aggregated models, co-mingled with matching, and market data feed handlers have to constantly be changed. That’s upset a few people in the marketplace, so we actually get congratulated on the fact that our customers are extracting more value over the years without them having to do too much,” he adds.
Of course, the FX market has continued to evolve since ParFX was launched, with liquidity – certainly in G10 spot – becoming an increasingly commoditised product. As a result of this change, Rutherford says that the key battleground for OTC multi-bank platforms has shifted from liquidity to the quality of execution that they can offer.
“We’ve moved on from liquidity; the ability to get consistent price discovery in the wholesale markets is already good. There’s lots of liquidity, so now it comes down to the quality of execution, and this comes from the behaviour that you see on the platforms,” he observes.
Rutherford argues that the randomisation and post-trade transparency offered by ParFX stops the types of poor behaviour that he contends still exist on other platforms, and help provide this improved quality of execution that firms increasingly look for.
Unsurprisingly then, the message for 2019 is: more of the same. However, Rutherford does point to distributed ledger technology (DLT) as one area to keep an eye on in the year ahead.
“The market is definitely looking for efficiencies and ways to improve credit management risk, and right now it seems like DLT is the solution that’s got the most legs,” he says, adding that ParFX is already connected to one provider of DLT solutions on the back of a client request to work through a proof of concept.
Rutherford adds: “DLT has a long way to go, it hasn’t supplanted or replaced anything yet, but I think that this year we’ll start to see more and more people actually being able to extract value from it, and I think that’s a key change for the market. “But as with any new technology or product, widespread implementation within the broader FX ecosystem – banks, trading platforms, technology vendors and end-user investors – will be key to its success.”