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LeapRate Exclusive Interview Series… The issue of liquidity in the Forex trading world has been front and center since the events of January 15 which shook up what was a fairly staid and stable industry. However liquidity providers have been focusing on a lot more than just helping their clients avoid disaster.
LeapRate is pleased to speak today with FXSpotStream (FSS) CEO Alan Schwarz on a variety of topics which occupy his time and energy nowadays – everything from what it means to be a bank-owned consortium, to the importance of GUI, to the LATAM forex market.
FXSpotStream is the only banked owned FX venue in the industry, structured as a market utility. As a bank owned consortium our aim is to provide the market a better, less expensive, more efficient and transparent venue for banks and clients to transact with each other in a fully disclosed bilateral manner. We eliminate the costs of execution for takers and significantly reduce the cost for makers – all without altering the trading relationship or experience.
How does FSS model most benefit its end user?
We provide a zero cost trading environment for buy side participants and allow our liquidity providing banks (LPs) to transact directly with their clients at a lower cost than through other “old style” venues. This is because we do not charge any brokerage fees or commissions to either the client or LP. We charge LPs a non-brokerage/non-volume based fee – the more volume transacted by an LP the lower the effective rate to trade. In turn, clients can benefit from better pricing as a result of the savings the LPs achieve using the FXSpotStream Service.
You have added many different LPs in the last the couple of years, any plans to add more or reduce this number?
We’ve actually doubled the number of liquidity providers in just over 3 years since the Service went live – adding 3 new LPs this year alone – which confirms that we have answered the call from market participants for a more efficient, less expensive way to transact with clients bilaterally. We currently have 12 of the largest FX global banks on our Service.
Adding another bank for the sake of adding another bank doesn’t do us and the users of our Service any good. Among other things, we look for banks that can add value either through client growth/additions or liquidity from different regions onto our Service.
Your new GUI was launched over the summer. Are you looking to expand in the platform space? (We really appreciate the look and feel here and increased transparency in the order book).
We always work closely with our clients to understand their needs and the new GUI provides them a brokerage free, easily accessible, robust application to meet their trading requirements. The launch of the new GUI, which supports spot, swaps and forwards and RFS functionality, continues the rapid expansion of the Service this year where we have already added new order types to our API and additional Liquidity Providers. The ongoing investment in new product delivery methods, expanded functionality and the addition of Liquidity Providers reflects our strong commitment to bringing much needed innovation to the FX marketplace on both a transactional and technology level.
You can see our new GUI in the picture at the top of the page, and more on the FXSpotStream GUI can be seen here.
Do you allow for algorithmic or high frequency trading on your API?
Yes and we have systematic clients that use the Service today. We are agnostic as to who can use the Service and take prices from our 12 LPs. We provide a FIX based API where clients can connect from sites in New York, London and Tokyo to ensure pricing is performed directly to each region with multiple connectivity options including co-location at NY2, LD4 and TY3.
Yes, we have many retail brokers on the Service with the majority of the largest retail brokers in Tokyo currently using the Service. Our clients and banks decide if they want to use our Service to trade with each other. We do not, however, allow individuals to access the Service to trade.
Which geographical location do you see the biggest volume growth and/or potential coming from?
To be honest, all locations continue to be growth areas for our business. This year through October our volume has grown 33% and the number of clients using the service has increased 40% when compared to the same period last year. We continue to work hard to expand our core business across the globe and build the offering to address the needs of our clients and Liquidity Providers. This means growing the existing FX spot, forwards, swaps and precious metals offering, expanding through new client acquisition and increasing the number of bank partners providing liquidity on the Service. In addition, we are constantly moving into new geographic markets, whether this is in Asia where we currently have a robust footprint in Tokyo, Singapore and Sydney or expanding across other countries in Europe and into Canada.
Alan, how were you instrumental in creating FSS as a subsidiary of LiquidityMatch LLC back in 2012?
I have been very fortunate to have been given the opportunity to start this business with our bank partners with the strong support of our clients. Plus, with a growing dedicated team and our technology partner, SmartTrade, we have brought to market a solution with a commercial model that has been needed in the market for a very long time.
We formed LiquidityMatch and FXSpotStream in late 2011 after I was hired to run the project in August of that year. Since then we launched the Service and went live in NY, London and Tokyo – just 7 months after the companies were formed; doubled the number of liquidity providing banks on the Service; expanded from spot FX to include forwards, swaps and RFS functionality and added spot precious metals; launched a GUI, which was upgraded this past summer; in September of this year we replaced all of our equipment at each of our sites and doubled the capacity available; opened an office in London; and much more.
The reason for our success has been quite simple, actually. We were asked to launch a new, less expensive and better way for banks and clients to trade with each other. We have kept our Service simple and listened to what clients want and need versus telling them what they require. And, importantly we provide high quality support – which is something too often ignored or forgotten as businesses mature.
Can you discuss your time at ICAP as you spent 8 years with the company. How did it prepare you to launch FSS?
Well, my preparation for my current role started many years before I joined ICAP. Prior to ICAP I was at BrokerTec, another bank owned fixed income ECN. I served as BrokerTec’s Chief of Staff and Global General Counsel. While at BrokerTec I worked closely with many of the same banks that we work closely with today and was part of growing a technology company looking to address many of the same problems we have tackled and continue to address at FXSpotStream.
We had a great CEO and management team at BrokerTec that were all focused on doing one thing – execute on an idea and do it with the highest level of detail and professionalism. It was an amazing experience, and along with a subsequent start up I co-founded offering technology and infrastructure to the systematic trading community, our current business was tailor- made for my background.
How was your experience in Latin America? Are we just scratching the surface in the LATAM currency market? Will a dominant currency such as Brazil’s Real or the Mexican Peso ever become a major player?
I was involved with ICAP’s growth in LATAM setting up and acquiring businesses in Brazil, Colombia, Argentina and Chile. Having spent my youth in various countries in LATAM, I have a personal affinity for the region and believe there’s a significant opportunity for our business there. However, the pace of change in some countries is not as fast as one would like and the fact is that when doing business in LATAM – or any other country for that matter – you need to understand and respect the local culture and approach versus thinking that you can dictate a model that works elsewhere.
Mexico is likely to continue to grow in importance in the near term and Brazil will as well, although obviously at the moment Brazil is going through some internal challenges. Long term, however, LATAM has a great deal to offer and the people are resilient and interested in growing their economies and presence in the market like any other region.
How is FSS in servicing EM currencies?
If our Liquidity Providers are willing to price a currency pair, we can support it on either our API or GUI. From a technology perspective, there is no limit to the pairs we can support and we currently support numerous emerging market currencies.