Reducing Latency in FX: Necessary but a Challenge

For platforms looking to differentiate on the speed of their technology the equation is measured in the scale of the challenge rather than the opportunity. As David Mercer, CEO of LMAX Exchange observes, “You can’t differentiate on speed, but you have to keep in line with the best in the market – and that means cost.” Liquidity providers have to be able to update their prices as quickly as possible, and likewise, trading venues have to deliver price updates to their customers as efficiently as they can, to facilitate a fair trading environment. “Five years ago market data was being delivered at 100 milliseconds, then more recently it was at 5 milliseconds,” notes Mercer. “At LMAX Exchange we are live streaming and cancel and replace of orders is measured in microseconds, but already people are talking about nanoseconds – and that’s a challenge for us.”
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Making Internalisation Work

Discussing the launch of NEX’s (Nex) new data analytics suite, Tim Cartledge, global head of FX and head of product at NEX Markets, says that it aims to make internalization more beneficial to both liquidity providers and consumers. “The problem that we’re trying to solve is that the relationship between liquidity provider and consumers on a relationship based platform actually doesn’t have much relationship left in it anymore because the way the market has evolved is that the liquidity consumers really don’t know how how the liquidity providers are making that liquidity, they don’t know how they’re holding the risk for an extended period until they find an offsetting client trade. In short, they don’t understand how internalization works,” says Cartledge.
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FX: Still a Relationship Business

As FXSpotstream (FSS) approaches its sixth anniversary its CEO, Alan Schwarz, argues that a shift towards disclosed trading is one of the biggest industry trends that has emerged during this time. In particular, he highlights when the Swiss National Bank (SNB) pulled its peg to the euro – which caused massive volatility in the market – as a catalyst for this trend. “Post-SNB you have Brexit and then you have the US election and there’s been an increase desire –and not only do we hear it but we see it based on the volume growth – for people to know who their counterparty is for credit reasons and market impact has become a very significant piece of the conversation. That’s fundamentally what we’ve seen change,” he says. 
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Does TCA Really Need to be Independent?

Speaking at the Forex Network Chicago conference, Mike Harris, president of Campbell & Company, discussed the pros and cons of independently provided transaction cost analysis (TCA). Pressed on whether a fintech firm being acquired by a larger company is necessarily a bad thing for their clients, Harris pointed to the example of BestX, the TCA provider that was acquired by State Street in August. Harris explained that Campbell & Company partnered with BestX because their TCA product was focused specifically on FX rather than being adapted from equities, and that they were the first to offer peer-to-peer functionality so that firms could opt-in to compare their trades to other people’s, as well generally being at the forefront of the TCA space.
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Blockchain and the Internet: Is it a Good Comparison?

The comparison between blockchain technology and the early days of the Internet is one that is perennially made in articles and at industry conferences, but is it accurate or even helpful? This was the question posed to Cristina Dolan, co-founder and COO of InsureX, and Adrian Patten, the co-founder and chairman of Cobalt, at the Forex Network Chicago conference. “The Internet was a lot easier to deal with because it was a linear process: you had a database, there were users, you had a web interface and although you were still training people how to use the web interface, you could control that whole ecosystem that you put up, you just had to drive people to the page,” said Dolan.
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Stories from the Trenches: Building a FinTech

Simon Wilson-Taylor, head of EBS Institutional, reflected at Forex Network Chicago on the challenges that he faced as the owner and head of a fintech firm, Molten Markets, prior to being acquired by EBS. “The first thing that I would say to any budding entrepreneurs out there is that building something, building a product, is the fun part and the easy part. Even finding clients is relatively easy,” said Wilson-Taylor, before adding: “The really difficult part that’s kind of out of your control is: how are my clients going to react? How is the market going to react? What are my legal, regulatory and insurance obstacles?” Going through the different business lines that Molten Markets operated, he explained that consultancy is a good way for fintech firms to generate some revenue and pay some bills as the barriers to entry are not particularly great.
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The FinTech Challenge: Scale or Independence?

There comes a point for most successful fintech startups when they face a decision: either join part of a larger organisation in order to scale up their business or continue to remain independent. There are trade-offs on each side of this decision, as Mike Harris, president of Campbell & Company, noted at Forex Network Chicago. Speaking from a client perspective, Harris said that he could see benefits from either side, but added that when senior figures at a fintech leave post-acquisition it is normally a warning sign. “One of the things that we watch are the people, not just the founders, but the core people that you’re working with - the relationship managers, the technologists - if they start to depart, either because they’re asked to leave or because it’s not what they signed up for, that’s usually kind of the writing on the wall,” explained Harris.
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Why Platforms Need to Offer More Than Just Liquidity

In an environment in which liquidity has become increasingly commoditised, how do FX trading platforms offering access to this liquidity differentiate themselves? This was the question put to Jill Sigelbaum, head of FXall, Refinitiv, during a recent video interview with Profit & Loss. Sigelbaum responded that providing transaction cost analysis (TCA) and pre-trade analytics tools are examples of ways that platforms can offer increased value to clients, but also highlighted a number of other services that are being developed. “What really differentiates us, and I think how we move forward, is the pre-trade workflow, the artificial intelligence that we plan to use around analysing the post-trade data so that we can make suggestions to clients, automating the process as much as possible without actually trading for our clients,” she said.
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Competition Continues to Heat Up Amongst Liquidity Providers

As more non-bank liquidity providers become active in the FX space, firms need to find ways to differentiate themselves to their counterparties, says Giovanni Pillitteri, portfolio manager at HC Technologies. “I do think that there will be certain consolidation in some counterparties,” he said in response to a question about increased competition amongst liquidity providers. “If your edge is only based on speed, that’s going to be commoditised, so you need to have the full spectrum of solutions and offer that full spectrum of solutions to counterparties to be able to compete in this environment.” Pillitteri also emphasised the importance of having a broader, cross-asset approach to trading in order to be a successful FX liquidity provider.
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Do We Really Need Decentralised Systems?

For all the hype and excitement around distributed ledger technology (DLT), speakers at the Forex Network Chicago conference debated the real value of decentralised systems such as blockchain. “If you’re trying to build a business you need to make it cheaper, quicker, with better customer services and hopefully allow people to have more access. Let’s be honest, blockchain fails on nearly all of those things,” asserted Adrian Patten, co-Founder and chairman of Cobalt. Patten added that the existing system for agreeing contracts has some elements that are beneficial, such as mediation, that decentralisation doesn’t necessarily allow for. By contrast, he described some of the things that he’s witnessed in the decentralised crypto trading space as “bloody scary”, adding: “A lot of these exchanges are being run on laptops and they’re lucky if they have Excel”.
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