Sponsored Editorial with smartTrade Technologies’ CEO David Vincent
1) What are the key challenges facing liquidity providers in these highly volatile and illiquid markets?
The Foreign Exchange market has experienced low volatility for quite some time, however since the COVID-19 pandemic arrival in Europe in mid-February, we have observed the return of high volatility. One of the liquidity providers’ (LPs) challenges is to meet the same level of expectation from their clients in terms of tight spreads, low rejections, minimal market impact, regardless of market conditions and volatility. With the lockdown in place almost everywhere, the LPs have had to adapt their way of working and must operate remotely either from home or from Disaster Recovery Centres which could explain why they are cautious and more averse to taking risks. This might also be why we are seeing liquidity reduction and more back-to-back hedging which contributes to volatility and higher volumes.
2) And those facing liquidity consumers trying to build a robust aggregation framework for example?
In times of uncertainty and during unpredictable events like those we are experiencing now, relying on a robust aggregation system is essential for consumers of liquidity to identify where the liquidity is in real time. Building such a framework also requires being connected to the right LPs with then a fast execution system to tap into the liquidity before it moves. Additionally, the value of using such a framework lies in features such as internalisation capabilities, the use of algos and analytics, and the ability to easily finetune it to be flexible and reactive to changing market conditions. In order to avoid unnecessary development costs, to benefit from the best available technology and to enjoy a short time-to-market, the most effective solution is to partner with technology providers such as smartTrade which offer out-of-the-box aggregation and execution together with award-winning connectivity.
3) How can technology help overcome these challenges?
Technology is key in helping any financial company overcome these challenges and working with a proven and trusted technology provider is critical. To find liquidity, it’s key to select a vendor with a very large connectivity stack, a powerful aggregation engine as well as an ultra-fast execution system which helps maintain high fill ratios. Having a proven infrastructure as well as a robust, resilient and scalable platform ensures that they can cope with large volumes of data to guarantee their business continuity. We have had excellent feedback from our clients on how our platform is rock solid and has behaved extremely well in these stressful conditions.
4) What role does data analysis play in this? How can market participants better utilise the data at their disposal?
In the high volatility context, data analysis plays an important role in monitoring market participants and LPs to ensure that they still operate to high standards’ and particularly when specific market conditions arise. Analytics gives you great insight into which of your Liquidity Providers performs better under stressful circumstances. Analytics also allows you to perform price cleaning and mitigate liquidity mirages.
5) What are the key metrics to watch in ensuring systems can cope with extreme “bursts” of trades, data?
There are two kinds of key metrics to follow on your trading performance and system performance indicators. Although they need to be adjusted, the key trading indicators remain the same: for example, volumes and fill ratios, rejection analysis, last look times, costs of rejection, and decay analysis reports. Regarding the performance of your systems it is a question of monitoring: hardware, servers, connectivity, storage, bandwidth, latency, throughput, CPU usage, memory usage, etc. With big data analytics’ tools such as smartAnalytics, our customers have dashboards and can configure alerts to follow all their key indicators. At smartTrade, we automatically monitor system KPIs to ensure that there is ample provision for any spikes in demand at every level.
6) With so many firms having people working remotely, often alone, what are the key technology solutions to help them manage the risks in their business?
The big advantage of Saas solutions like ours, is that they can be accessed out-of-the-box remotely which allows firms to continue their trading business while accessing the service from home rather than the office. Our ser Interfaces are built in HTML5 so our customers can access them from home with the same user experience as that of being at the office. Of course, remote connections are subject to strict security authentication and our solutions have in-built data capture and recording to fulfil best execution regulatory requirements.
When the first lockdowns were announced, smartTrade used an automated VPN management system that allowed 100% of our staff to be remotely and instantly connected so our customers can count on our support and our service levels are fully maintained. Additionally, as smartTrade is a distributed company with staff around the world, we were already very familiar with this way of working.
7) What are the early lessons from this period of illiquidity and extreme volatility for technology users?
We believe that there will be many lessons to be learned from this difficult period but it is still too early to make predictions. One thing is certain, as people have to operate remotely, electronic trading is key and might even be the only option for trading today. So we expect companies to assess their technology after this crisis, and if it’s not already the case, make it their number one priority to have the best-of-breed technology and infrastructure in place should similar challenges happen again.
For now, the feedback that our customers have given us is that they greatly appreciate being able to count on the continuity of service we provide along with having the teams and business continuity plans in place to support them. As they rely on a hosted and fully managed service, it means that they don’t have to bear the weight of managing their own resources. Above all, clients told us they particularly appreciate the fact that smartTrade has a flat, transparent and predictable pricing model which means that costs will not increase as their volumes grow. Clients of ours who used to be on a volume-based pricing model, where vendors charge a dollars-per-million fee, have told us that with the current volumes and thanks to our flat fee pricing model they have been able to make huge savings.