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Welcome to
e-FOREX
transforming global foreign exchange markets
January 2022
Happy New Year!
An important theme running through this edition involves FX data
and how to manage it. Many trading firms in our industry find it
difficult to leverage their data and a major reason for this of course
is the fragmented nature of the market which has so many different
channels. This presents a significant challenge as does correctly
capturing and storing data, which for many is time and resource
intensive and requires specialist knowledge of both FX markets and
data science. On top of all this there is the additional problem of
actually analysing the data sets that have been captured and deriving
actionable insights from them. Luckily help is now on hand to
address many of these issues with the arrival of next generation data
platforms that utilise AI and Machine Learning.
These platforms offer numerous benefits to both buyside and sellside
firms alike ranging from analytics that can power TCA and provide
in-depth understanding of execution patterns to productivity toolsets
which can provide detailed insights into the value that each client
brings to the business relationship. The technology powering FX
trading does not stand still for long and further developments in this
area are on the way including advancements in natural language
generation (NLG), a software process that automatically transforms
data into a written narrative, which promises yet more gains in
efficiency, performance and business insights. We will be coming
back to the topic of data management regularly throughout this year.
Our regional perspective in this edition focuses on Australia where
part of the e-FX story is focused around algorithmic trading. Increased
uptake of this style of execution is not only happening amongst
established institutional players but also corporates where the first
meaningful usage is starting to be seen. A big influence on current and
future FX trading activity in Australia is the increasing volumes reported
by industry super funds which has grown substantially over the last
five years. It has more than tripled, and is likely to continue to grow at
above usual trends for the foreseeable future. With electronic trading
toolsets delivering benefits to firms like these over the next few years
and providers working on expanding the breadth of products available
via their electronic platforms, the e-FX market across Australia is likely
to remain vibrant for the foreseeable future as well.
Susan Rennie
Susan.rennie@sjbmedia.net
Managing Editor
Charles Jago
charles.jago@e-forex.net
Editor (FX & Derivatives)
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As usual hope you enjoy reading this edition of the magazine.
Charles Jago Editor
JANUARY 2022 e-FOREX 3

January 2022
CONTENTS
FOR THE DIARY
12. TradeTech FX USA 2022 - February 16 – 18th
e-Forex talks to the conference organiser and one of the key buy side speakers.
DATA MANAGEMENT
16. Next generation Data platforms and the FX Markets
Vivek Shankar explores whether we are set to witness a transformation in the
ways firms leverage their data.
PROVIDER PROFILE
24. With leading independent electronic price discovery and execution venue
DMALINK
TRADING OPERATIONS
26. Exploring the benefits of White Labelled electronic FX option platforms
Vivek Shankar investigates how effective white label solutions for FX options
have become.
Vivek Shankar
FX Data Platforms
Arjun Jayaram
e-Forex Interview
PRODUCT REVIEW
32. Unique Algo density metric from BestX
We examine the BestX solution that allows FX traders to identify the optimum
time to trade algorithmically.
THE E-FOREX INTERVIEW
34. Baton Systems - Redefining FX post-trade processing
e-Forex spoke with the company’s Founder and CEO, Arjun Jayaram, to find
out more about how Baton Systems is introducing fully interoperable digital
infrastructures and the impact this will have on the FX market.
CONTENTS
Jörg Bermüller
Case Study
Nicholas Pratt
e-FX in Australia
CASE STUDY
42. Boosting Treasury in India
Jörg Bermüller, outlines how his Group Treasury team at Merck reduced FX
risks, optimised liquidity and streamlined processes in an award-winning
project with Deutsche Bank.
REGIONAL E-FX PERSPECTIVE
46. e-FX on the up down under
Nicholas Pratt looks at how e-FX adoption in Australia is growing and can be
further encouraged.
FINTECH & CONNECTIVITY
54. Deciding to ‘Build’ or ‘Buy’ Cloud Infrastructure in the Capital Markets Sector
We explore some of the issues surrounding the old question of ‘Building vs
Buying’.
BROKERAGE OPERATIONS
60. Harnessing the power of technology to help brokers reduce their FX market
data costs
Evgeny Sorokin discusses why there is always scope for improvements to be
made and money to be saved when managing market data.
Michael Siwek
Provider Profile
Andrey Kamyshanov
MT5 Gateways
64. Why brokers prefer Metatrader 5 Gateways over bridges
Andrey Kamyshanov outlines why brokers still prefer MetaTrader 5 Gateways
over Liquidity Bridges.
COMPANIES IN THIS ISSUE
A
ANZ
B
Baton Systems
Beeks
BestX
BidFX
Brokeree
C
Centroid Solutions
Citi
p49
p34
p54
p32
p18
p68
p15
IFC
D
Darwinex
Deutsche Bank
Devexperts
Digital Vega
Digitec
DMALINK
F
Finalto
FXCM
FXSpotStream
p57
p42
p10
p27
p58
p24
p21
p63
p9
I
Ideal
Integral
Invast
IPC
M
Match-Prime
Merck India
Mosaic Smart Data
O
oneZero
P
PlugIT
p6
p53
p51
OBC
p8
p42
p19
p45
IBC
R
Reactive Markets
Refinitiv
S
Sheer Markets
smartTrade Technologies
Swissquote Bank
T
Tickmill
p6
p31
p8
p5
p7
p65
4 JANUARY 2022 e-FOREX

We create future trading technologies
THE SMART WAY
TO FOCUS ON
YOUR GAME
www.smart-trade.net
JANUARY 2022 e-FOREX 5

Reactive Markets partners with Tradefeedr
Reactive Markets, provider of
Switchboard, the cutting-edge crossasset
trading and price streaming
network, has formed a strategic
partnership with Tradefeedr, a leading
independent data and analytics
provider. Under the partnership
Switchboard clients can choose for
their Crypto and FX post-trade data to
automatically stream to Tradefeedr. The
new service is live and fully integrated
with Switchboard, meaning that clients
who opt-in will see their post-trade
data streaming from Switchboard to
Tradefeedr within minutes. Switchboard
is the first open and transparent liquidity
network for Crypto and FX trading,
where clients can trade on a fully
disclosed basis with their relationship
LPs at no cost, connecting via a single
high performance API or front end
trader desktop. Tradefeedr has created
a common, truly independent trading
database, which allows the sell-side,
buy-side, regional banks, hedge
funds, brokers, and central banks to
connect, analyse their trading data, and
collaborate. In June 2021, Tradefeedr
launched its ground-breaking data
analytics platform with more than 15
Phil Morris
leading sell-side and 20 major buy-side
firms onboarding and another 20 in
the pipeline. Phil Morris, CEO, Reactive
Markets commented,“By working with
Tradefeedr we are able to offer clients
market-leading and complementary
services for trading and data analytics
in Crypto and FX asset classes. We
continue to attract new clients to
Switchboard, as firms look to improve
their execution, and we expect our
strategic partnership with Tradefeedr
to accelerate growth for both firms.”
Balraj Bassi, Co-Founder of Tradefeedr
commented, “There is a great deal of
synergy between Reactive Markets and
Tradefeedr. Both offer best-of-breed
specialist services, both are open
platforms designed to improve trading
for all market participants, and both
have zero fees for buy-side clients.”
NEWS
Ideal partners with Barracuda FX
Ideal, the decision intelligence
firm, is now offering its powerful
performance analytics and supervisory
risk management solutions to clients
trading within ION-owned Barracuda
FX’s secure environment. The
partnership between Ideal and
Barracuda FX provides clients with
turnkey access to industry-leading
analytics and actionable insights.
The Ideal Flow solution brings an
unprecedented level of insight
to FX trading. Ideal Flow offers
independent TCA reporting, client
and counterparty analysis, liquidity
management, and more in one
unified interface. In addition to best
execution reporting, Ideal Flow provides
powerful visualizations and analysis
of counterparty behavior—both over
time and by the millisecond—flagging
potential issues to investigate and
informing client tiering and flow
decisions. The Ideal Control solution
streamlines trade supervision for firstline
risk management teams, helping
to foster more ethical trading behavior.
Particularly relevant for senior managers
complying with SMCR, Ideal Control
provides independent validation and
evidence of ethical decision-making,
greatly mitigating operational,
reputational, and regulatory risks.
Ideal Control operationalizes trading
best practices and principles-based
regulation as quantifiable checks,
curated alerts, and clear action
steps—automating workflows and
building a defensible audit trail over
time. “The highly specialized analytics
powering Ideal solutions reflect our
team’s firsthand experience leading
trading desks and quant groups for
over two decades in-house, within
FX, fixed income, and other asset
classes,” said Ideal CEO John Crouch.
“Our in-depth understanding of
FX-specific dynamics and workflows
translates to user-friendly interfaces
with intelligent curation built-in.”
Crouch continued, “Ideal Flow and
Ideal Control analyze the same pool of
FX trading data through two different
lenses, illuminating how traders can
optimize their performance and helping
supervisory risk managers adhere to the
FX Global Code and MiFID MAR code
of conduct principles. We’re excited
to bring these decision intelligence
solutions to Barracuda FX clients.”
John Crouch
6 JANUARY 2022 e-FOREX

Institutional
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LIQUIDITY SOLUTIONS
Combine power and tailor-made for best-in-class execution on FX Spot, Metals,
Swaps, Forwards and Commodities. With a deep liquidity pool, custom streams,
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JANUARY 2022 e-FOREX 7

Atlas Bank partners with Centroid
Solutions
Atlas Bank has announced its new
strategic partnership with Centroid
Solutions, a technology provider
that specializes in risk management,
quantitative analytics, connectivity,
execution to improve risk-adjusted
performance and strengthen
sustainability for multi-asset brokers.
in a wide range of global jurisdictions.
Our aim is to grow the Atlas FX
business with these types of strategic
partnerships to offer as many potential
clients as possible the benefits of
working with a bank that has a truly
service led approach,” said Daniel
Caamano, Chairman, Atlas Bank.
Bank, accessible via the Centroid
Gateways aggregator engine.” said
Cristian Vlasceanu, CEO of Centroid
Solutions.
“Partnering with Centroid is an
important step for us in offering our
flexible liquidity and banking solutions
to a wider audience of FX brokers.
We are confident that through
collaboration with businesses like
Centroid that have the technology to
help brokers access our services, it will
allow us to serve more potential clients
“We are delighted to establish this
partnership with Atlas Bank and
integrate our technology with their
liquidity, clearing and settlement
solutions. Our customers will benefit
from this partnership by gaining
access to high quality liquidity and
can expand their offering through the
extensive products offered by Atlas
Cristian Vlasceanu
NEWS
Sheer Markets selects Match-Prime
Sheer Markets is collaborating with
Match-Prime, a Liquidity Provider,
authorized and regulated by
CySEC, in order to gain access to
the latter’s liquidity pool. Howard
Carr, Chief Executive Officer of
Sheer Markets, says: “As an entity
regulated by CySEC, we strive to
provide the highest quality services
to our clients. Therefore, we are
constantly looking for trustworthy
partners who share our philosophy.
We searched for a suitable liquidity
provider for a long time and finally
decided to cooperate with Match-
Prime. We were convinced by
their approach to us as partners,
and their offer is constantly
expanding. We try to deliver an
innovative product ourselves,
which includes traditional CFDs on
Foreign Exchange, Commodities,
Stocks, Cryptocurrencies and Stock
Indices, that’s why we needed a
partner to rely on that understands
modern business. Currently, we
are in constant contact, and the
cooperation is very good. I’m certain
it will remain so in the future.”
Andreas Kapsos, Chief Executive
Officer of Match-Prime Liquidity,
adds: “Sheer Markets, just like
our company, is a relatively new
established organization, which
is also regulated by the Cypriot
Regulator; therefore we have a
common understanding, knowing
which are the potential problems
that may arise. We are glad that
such a team of professionals has
trusted us. I am sure that our
businesses will grow together. I
believe that our deep, multi-level
liquidity will help them take the next
step in the right direction.”
Andreas Kapsos
8 JANUARY 2022 e-FOREX

Evolving with the Market
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FXSpotStream is a bank owned consortium operating as a market utility, providing the infrastructure
that facilitates a multibank API and GUI to route trades from clients to LPs. FXSpotStream provides a
multibank FX streaming Service supporting trading in FX Spot, Forwards, Swaps, NDF/NDS and
Precious Metals Spot and Swaps. Clients access a GUI or single API from co-location sites in New York,
London and Tokyo and can communicate with all LPs connected to the FSS Service. Clients can also
access the entire Algo Suite of the FSS LPs, and assign pre- and/or post-trade allocations to their
orders. FXSpotStream does not charge brokerage fees to its clients or LPs for its streaming offering.
Algo fees from an LP are solely determined by the LP.
JANUARY 2022 e-FOREX 9

Introducing DXtrade: a new SaaS multi-asset trading platform
trading for FX/CFD, platform Crypto, for Stocks, FX & CFD Options, brokers Futures
A stand-out-from-the-crowd
platform with unique features
10 JANUARY 2022 e-FOREX

JANUARY 2022 e-FOREX 11

FOR THE DIARY
TradeTech FX USA 2022
February 16 – 18th
Meet the organisers and
speakers behind the conference
TradeTech FX USA is back this February,
taking place LIVE and in-person at the
exclusive Eden Roc Resort in Miami. As
the largest FX conference dedicated to
the buy side, this will be the FX industry’s
first opportunity since the pandemic
began to network and learn from North
America’s leading buy side Heads of FX
Trading and Portfolio Management, faceto-face,
under one roof.
Irene Cerquaglia, TradeTech FX Conference Director
As the official magazine partner of
TradeTech FX, e-Forex has been given
exclusive access to interview the
conference organiser Irene Cerquaglia
and one of the buy side speakers, Tomo
Tokuyama, Head of Trading at First
Quadrant.
12 JANUARY 2022 e-FOREX

FOR THE DIARY
IC: What are you most looking
forward to and what makes TradeTech
FX a must-attend event?
“I’m really excited for the 2022 edition
of TradeTech FX USA. I recall being at
the Eden Roc in Miami in February 2020
enjoying conversations with delegates in
sunny warm weather to then come back
to a very different world a week later.
I’m most looking forward to catching up
with many familiar faces in person again
as this will be the first opportunity to in
two years and I’m sure we will have lots
to discuss!
After spending many weeks
researching with our Advisory Board
and buy side community, we are
excited to bring you an agenda that
address your biggest priorities and
provides practical insights to help
future-proof your FX desk. We can’t
wait for you to experience the buzzing
exhibition hall once again where you
can socialise with your industry peers
over coffee, lunch and drinks and
evaluate the latest FX solutions.
Our main goal for this conference
is to create a fun and stimulating
environment for the full FX ecosystem
to re-connect with friends and forge
new partnerships and I look forward
to connecting with our FX community
again very soon!”
TT: What is the biggest opportunity
for the buy side at TradeTech FX?
The biggest opportunity I see for
the buy side is to re-examine their
trading desks. Presumably most, if not
all trading desks have had to work
from home at some point during the
pandemic, so it makes sense to reflect
on what worked, what didn’t, and if
trading is a function that would benefit
from a hybrid work arrangement.
For us, I see 2022 as an opportunity
to identify our manual processes and
Tomo Tokuyama, Head of Trading, First Quadrant
explore if there are tech solutions that • Learn something new or discover
can solve those issues. I continue to new technology that could help our
believe that automated trading for
firm in the future.
much of the straightforward execution • Catch up with my peers and other
is the future and feel there will be
Heads of Trading to discuss as well
opportunities in the upcoming year as compare differences and best
to take one step further to achieving practices.
that. Whether it be more auto
execution, peer-to-peer matching for TT: What has been yours or your
our large swaps, or even a greater company’s most impressive
increase in algo execution. The lens to achievement in2021 and why?
which I will examine our processes will
be simple - Why are we manually doing Our firms most impressive
this? And is there not a tech solution to achievement has definitely been the
solve this?
seamless ability to transition from in
office work to at home work. First
TT; Tell us about your involvement Quadrant was well ahead of the curve
with TradeTech FX and what are you especially in trading as we have always
most looking forward to?
had the ability to work from home
given we trade 24hrs. Therefore, all
I’m once again part of the advisory of the trading team for years now has
board and hope that my input will had the exact same set up at home as
result in new and engaging topics. I they do in the office.
always look to accomplish the same
goals during the conference:
The trading team VPN is directly
connected into their work machine
• Meet new and interesting people and does not have any programs on
that are part of the FX ecosystem their local machine. This way the
that I would most likely never meet firm can still monitor everything we
outside of the conference.
do. The firm also took a sensible
• Make sure to see the banks, approach to office closures; the office
brokers, and vendors that service technically was never closed so those
us, continue to build relationships who needed to access it had the
with them, and show my
ability to do so. There was, and still is
appreciation for their hard work. no official mandate to return to office,
JANUARY 2022 e-FOREX 13

TradeTech FX USA 2022 February 16 – 18th
Our main goal for this conference is to create a fun and stimulating environment for the full FX ecosystem to re-connect with friends and forge new partnerships
FOR THE DIARY
although many vaccinated employees
do go in. I feel the seamless transition
was a great achievement for our firm
and allowed us to maintain business
as usual during the pandemic. It also
allowed the firm to gauge how to
move forward post Covid, as hybrid
work schedules have showed increases
in productivity as well as decreased
travel risk, as it has eliminated the
long and unpredictable Los Angeles
commute.
TT: How has COVID-19 changed your
role and the demands on you and
your team?
The COVID 19 pandemic hasn’t
necessarily changed my role or
my team’s role, however, it has
validated what we already knew
to be true which is that we could
function predominately from home
without skipping a beat. Again, we
have always had the ability to trade
from home, but we never felt that
disconnected given we all made an
effort to be in the office at the same
time.
face when trying to grow and build
relationships, however, it has become
clear to me that the actual trading
function itself can be done at home
without issues.
The challenge has been, how can we
replicate the team building aspect,
and how can we still add value to the
firm. The answer has been more effort
towards communication, and more
effort towards meeting outside the
office. I don’t think it’s a secret to say
that many of the conversations we
have in the office with our peers are
not 100% Yudhveer work Chaudhry
related, John and Evans that’s
how relationships BlackRock
get built as we
learn more about our colleagues and
their lives. I have made a conscious
effort to improve communication
within our team. We use Zoom,
slack, text, and often have group calls
just to hear each other’s voices and
catch up on both work and personal
things. We also coordinate to try and
be in office at the same time when
we do go in. Furthermore, Eden Roc, Miami we make
an effort to do team lunches either
Buy Side FX Tech Innovation Day Feb 16 | Main Conference Days Feb 17-18
in office or outside the office. I feel
Join the BIGGEST FX Trading Community
Global Head of FX
Trading
Jason Fromer
Head of FICC Trading
Manulife Asset
Management
Head of Blockchain
Vanguard
Tomo Tokuyama
Head of Trading
First Quadrant
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Or Use Code: EFORFXTT22
Arnab Das
Global Macro
Strategist
Invesco
this is vital for the future as less and
less face-to-face interaction will result
in less meaningful relationships. If we
simply just do our jobs with limited
communication, we all become
nameless Stephen pawns Li Jen
Cameron Crosby
that have no added
CEO & Co-CIO
Eurizon SLJ Capital
value, which will lead to Guggen people
Nowara Munir
Head of FX Trading
Lazard Asset
Management
becoming easily replaceable with
another nameless pawn.
Paul Shahied
Head of FX
Trading
Fidelity
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Head of FX &
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Teresa Woodard
Head of Trading
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Admittedly, prior to the pandemic
I was a big proponent to being in
the office and having as much face
time as possible. I felt that it built
camaraderie within the team but also
felt it was important for our team to
be visible to the rest of the firm. I still
believe that nothing replaces face to
Find Out More & Register: tradetechfxus.wbresearch.com
14 JANUARY 2022 e-FOREX

JANUARY 2022 e-FOREX 15

Next generation Data
platforms and the FX Markets:
Are we set to witness
a transformation?
By Vivek Shankar
DATA MANAGEMENT
Images by Shutterstock
Vivek Shankar
As the FX markets have embraced
electronification, the volume of data
market participants have access to
has increased exponentially. A 2020
Bank of International Settlements
(BIs) report discovered that electronic
algorithms accounted for 10-20% of
all spot FX trading. The BIS highlighted
that this represents $200-400 billion in
daily turnover.
The rise of algorithms is just one
example of how central data collection
and management has become to
modern institutional FX. Without
data, these algorithms cannot react
to market conditions intelligently.
Everything from market conditions,
liquidity information, to transaction
cost analysis (TCA) plays a role in
optimal execution.
Despite the rise of electronic execution,
most market participants struggle to
leverage their data. Matthew Hodgson,
Founder and CEO of Mosaic Smart
Data, highlights a few reasons for this.
“The bedrock of any effective analytics
platform is aggregated, normalised
and enriched data,” he says. With FX
liquidity fragmented across so many
different channels – and data often
delivered at ultra-low latency – it is a
significant challenge to aggregate the
flow that it is transacting across all
channels including electronic, single
dealer and voice. Correctly capturing
and storing both the bank’s own data
is time and resource intensive and
requires specialist knowledge of both
FX markets and data science.”
In recent years, the markets have
witnessed the rise of data-driven
platforms that promise insight into
trading workflows. How effective are
these platforms, and do they really
make a trader’s life easier?
THE CHALLENGES HINDERING
DATA-DRIVEN INSIGHTS
Firms have traditionally had no issues
generating and collecting data from
their market activities. However,
analysing these data sets and deriving
insight has been problematic.
Ironically, the electronification of the
market in spot has posed a challenge.
16 JANUARY 2022 e-FOREX

DATA MANAGEMENT
JANUARY 2022 e-FOREX 17

Next generation Data platforms and the FX Markets: Are we set to witness a transformation?
DATA MANAGEMENT
Global foreign exchange market turnover Net-net basis- Daily averages, in millions of US dollars
“The bedrock of any effective analytics platform is aggregated,
normalised and enriched data,”
Matthew Hodgson
FX traders have long loved voice since
it gives them a full view of the market
across different LPs. As Tier 1 LPs have
become selective of who they interact
with, the majority of spot participants
receive prices through aggregated
platforms or lower-tier institutions.
Thus, clients trading in spot FX at a
certain size will receive completely
different data from different LPs. This
affects the depth to which they can
analyse these datasets.
Order flows are also a particular
challenge. Typically, orders flow from
a PMS to an OMS, and finally to an
EMS, gathering and analysing data
along the way. As algo adoption
has increased, the sheer volume
of data and trading frequency has
left execution platforms unable to
cope with the pressure. While many
platforms have introduced major
updates, order flow complexity poses
a significant challenge.
There’s also the issue of market
fragmentation. While spot is traded
electronically, for the most part, the
NDF and swaps market work largely
off voice or hybrid broking models.
The result is multiple datasets and
workflows that don’t integrate. A
manager or trader who wants to gain
a bird’s eye view of their activities
will always have to account for data
siloed in a different system. As an
example, here are a few sources from
where firms generate data: Electronic
& voice transactions, sales coverage,
client data, instrument data, market
activity (from multiple markets stored
on different systems.) Data silos are
perhaps the biggest challenge with
which firms are currently dealing.
In a rush to gather data, firms
neglected to impose data integrity
and governance processes. The result
is multiple data sources, all of them
in different formats that don’t talk
to each other. Fragmented data
sources result in slower reporting since
employees must manually convert and
filter data. In turn, firms lack a global
view of their operations data and must
roll up individual datasets.
From a business perspective, inefficient
infrastructure results in missed RFQs
due to inconsistent quoting and price
discovery. Market participants have
long been aware of these issues but
their efforts have been stymied due
to the complexity of the task ahead
of them. After all, most firms lack
expertise in what is essentially an IT
function.
Data analysis, database organization,
and integrity have long been the
purview of technical, back-office
departments that have proved
challenging to manage. To illustrate
the problem, most firms run into issues
defining the goal driving data analysis.
Which problems will data analysis solve
and which questions do firms need
their data analytics to answer?
Image by Shutterstock
Data analysis, database organization, and integrity have long been the purview of technical, back-office departments
that have proved challenging to manage.
Daniel Chambers, Head of Data and
Analytics at BidFX, further expands.
“For a long time there were many
talks, conferences and discussions
around big data,” he says. “However,
it normally isn’t a case of the more
data the better. The questions of,
‘What am I trying to see in the data’
and ‘How can it improve my strategies
and/or execution’, etc. help to target
what data is collected, how it is stored
and how it is analysed. It’s very easy
to get lost in data and although
experiments on data serve their
purpose, the initial value is normally
derived if targeted data collection and
analysis is done.”
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Next generation Data platforms and the FX Markets: Are we set to witness a transformation?
DATA MANAGEMENT
Image by Shutterstock
“Clients are also using analytics less often solely for box-tick
regulatory reasons, but more and more for actual execution or
strategy improvement.”
Daniel Chambers
Chambers points out that the
usability of data by stakeholders
has to be considered at all times.
After all, data isn’t of any use
unless it can be leveraged by those
who will use it routinely. “This will
likely lead to an attempt to limit the
number of third-party data/analytics
providers that they’re connected
to,” he says. “This can be difficult
due to fragmentation of data and
of services provided.”
Hodgson outlines three steps that all
firms must take. “First, it is vital to
understand what the data needs and
analytics ambitions of the firm are,”
he says. “Once source systems have
been identified, and the parameters
and ambitions are established,
the second stage of the process –
aggregating and normalising data
– can be undertaken.There is an
important third and final step which
is to enrich this normalised data set
with additional fields of data that
are missing from the transaction
record. This is where external data
sets can be employed to ‘plug the
gaps’ in a firm’s data.”
NEXT-GENERATION DATA
PLATFORMS PROVIDE
SOLUTIONS
Institutional finance was initially
cagey about adopting third-party
expertise, but as the challenges of
running complex IT departments
came to light, many have chosen to
outsource technical ability. There are
many benefits to this approach. First,
firms can rely on up-to-date market
technology at all times since data
platforms are built with technology as
a central pillar of their businesses.
Fragmented data sources result in slower reporting since employees must manually convert and filter data.
Their interfaces do the heavy technical
lifting behind the scenes while
presenting a low-code, easy-to-use
interface upfront. The result is anyone
can run reports, irrespective of their
technical ability. These platforms also
help firms normalize and gather their
data onto a single platform, making it
easy to run analytics. Some platforms
even come equipped with artificial
intelligence (AI) algorithms that
learn a user’s behavior and provide
customized recommendations. From
an LPs perspective, these algorithms
can spot trends in client trading
volumes and allow the firm to assume
a proactive stance towards client
demand.
As Hodgson puts it, “Using AI
and machine learning you can, for
example, see which customers are
about to defect, and therefore up
your defensive measures – after all, it’s
much more expensive to gain a new
customer that maintain an existing
one. You can also become more
offensive, because you are able to see
what customer activity you anticipate
on a particular day and then serve
that customer with the appropriate
inventory. This technology can be
leveraged to improve the service a
bank’s FX desk can offer to all types of
clients – corporates, retail customers,
hedge funds, asset managers, central
banks and even internal clients.”
The analytics from these platforms
can also power TCA that lower costs
and provide in-depth insight into
execution patterns. As regulatory
pressure increases compliance costs,
TCA is central to ensuring greater
efficiency in trade workflows.
Chambers highlights a few examples.
“The feedback loop from post-trade
to pre-trade can be a tricky one, but
it can be achieved in a number of
different ways. The first is to help
in more general terms of choosing
which time of day to trade, which
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Next generation Data platforms and the FX Markets: Are we set to witness a transformation?
Image by Shutterstock
“The key benefit of next generation
FX data platforms such as Mosaic is
enabling banks to be smarter than
ever when it comes to gaining a
comprehensive view of their data
and extracting value from it,” says
Hodgson. “Productivity is key to
retaining a competitive edge, and AI
can allow the FX desk to predict its
clients’ needs far more effectively and,
ultimately, drive more business.”
DATA MANAGEMENT
Cybersecurity is paramount these days and a good service provider will highlight the steps they’ve taken to ensure
top-notch protection
currency pairs to use to enter/exit
positions and importantly how to
curate your pool of liquidity. Time of
execution assistance can be through
deciding how long to take to trade,
using an algo or RFQ, exposure to
announcement headline risk and
more.”
Ease-of-use is one of the primary
benefits that modern data platforms
offer. For instance, BidFX helps to
bring efficiency to traders by offering
a suite of analytics templates that help
with TCA and other trade workflow
task optimization.
DATA SCIENCE POWERS ALPHA
GENERATION
The next-generation data platforms
currently on offer cater equally to
the buy and sell-side. Thanks to
customization, these platforms
throw up a variety of data-backed
conclusions and firms can use them as
their business demands. For instance,
sell-side traders can use these insights
to figure out who their most profitable
client is and the value each client
brings to the business relationship.
Insights such as these help them
prioritize their time better. Spotting
execution trends is also simple with
these platforms. For instance, Mosaic’s
Smart Data platform highlights
decreasing business from certain
clients and provides analytics to
suggest possible causes. Firms can
customize the degree of insight they
receive from the platform and the
data views they wish to dissect.
Mosaic’s platform also makes it simple
to evaluate order flow proportions and
correlate them to client behaviour.
In essence, traders have a worldclass
quantitative analyst by their
side discovering market and client
anomalies and summarizing important
data when requested.
Everything from a client’s seasonal
flow to their lifetime value is
automatically calculated, and
traders don’t need special technical
knowledge to make these algorithms
work. Depending on a firm’s wishes,
Mosaic’s platform even suggests
future courses of action, thanks to its
AI-powered algorithm.
Liquidity-level data analysis offers
significant advantages to buy-side
teams. Especially relevant is data’s
ability to isolate the most effective
areas of business in a trading
operation. Does the firm have enough
access to liquidity to exit their trades
efficiently, and so on?
LPs and sell-side firms can compare
their datasets to the broader market
to analyse gaps in their business. Data
analysis also allows for benchmarking
opportunities, and banks can use
these datasets as a selling point. For
instance, comparing current execution
data to historical benchmarks provides
banks instant feedback regarding
standards. They also enhance
execution transparency and help
clients understand where they stand.
BidFX offers its clients the ability to
annotate data, thereby simplifying
policy management. Clients can
annotate change points in their data
and easily measure effectiveness
post-change versus historical. This
ability to derive real-time conclusions
makes it easy to leverage datasets.
BidFX is also optimistic about its
Verdict system. This system allows
its clients to define trade execution
parameters (spread, speed, etc) in
line with internal cost control policies.
These checks take place pre-trade
and reduce the chances of a postfaulty
trade post-mortem. Data from
this system can also enhance client-LP
relationships.
22 JANUARY 2022 e-FOREX

DATA MANAGEMENT
Image by Shutterstock
FIRMS SHOULD
IDEALLY PARTNER
WITH PLATFORMS
THAT GIVE THEM
ACTIONABLE
INTELLIGENCE WITH
WHICH TO WORK
to an expert third-party provider
are the frequency of updates
and infrastructure maintenance.
An ideal data platform partner
will be up to speed with market
developments. They can help firms
assume a proactive stance towards
market movements and help them
anticipate sources of volatility
Image by Shutterstock
through deep data analysis.
Clients can share data with their LPs
and explain their decision to either
choose the LP or an alternative source.
“Clients will move away from only
looking at execution costs and TCA,
but also analysing liquidity provision.
This is easiest done with platforms
already collecting the data as it is large
amounts of data on a daily basis,”
says Chambers. “They are also using
analytics less often solely for box-tick
regulatory reasons, but more and
more for actual execution or strategy
improvement.”
EVALUATING SERVICE
PROVIDERS
While the advantages of embracing
a data platform are many, how does
one go about evaluating service
providers? Given the complexity of
trading workflows and the features
on offer, this task might seem
intimidating at first.
The best place to begin is to
evaluate how well a service provider
understands a firm’s business, whether
it’s the buy-side or the sell-side. An
ideal service provider is effectively
a partner in their client’s business,
instead of a mere infrastructure
provider. Insights provided by the
vendor can also power new trading
strategies, via advanced analytics.
Needless to say, data security and
partitioning are key issues to consider.
The best service providers highlight
their ability to provide data pipelines
but won’t have access to what flows
through them. Client data remains
in the client’s hands with the service
provider securing all ends of the
network.
Cybersecurity is paramount these
days and a good service provider will
highlight the steps they’ve taken to
ensure top-notch protection at all
times. Volatile markets will cause
turmoil and a good service provider
ensures basics such as data integrity
and security are always in place,
allowing firms to focus on the markets
in such times.
The quality of a data platform’s
dashboards is also a great indicator
of performance. Firms should ideally
partner with platforms that give them
actionable intelligence with which to
work. These recommendations should
be sourced from historical trading
patterns and must incorporate the
specifics of a firm’s workflow. Generic
recommendations that could apply to
multiple situations are unhelpful.
One of the biggest advantages of
outsourcing data infrastructure needs
WHAT THE FUTURE HOLDS
As innovation in FX continues to rise,
adoption rates are increasing across
the board. Cloud-based technology
is making it easier than ever to adopt
and scale electronic solutions.
Mosaic’s Hodgson highlights
another interesting development.
“Advancements in natural
language generation (NLG), a
software process that automatically
transforms data into a written
narrative, will also continue to
develop,” he says. “Imagine if
your highest performing, most
experienced quant could write all
the reports your bank generates.
And now imagine those reports
could be produced in seconds and
distributed across the bank. The
gains in efficiency, performance
and business insight would have an
almost immediate impact on your
bottom line,” he concludes.
BidFx’s Chambers predicts greater
electronification away from the spot
market. “The product coverage will
expand,” he says. “For example,
analysis that was done on equities
and futures spread into FX and now
within FX there’s spot analysis that
is moving into outrights and NDFs
as well as options.”
Add to all this the rise of platformcompatible
solutions and greater need
for insight into workflows, there’s
no doubt that the markets are set to
witness significant changes.
JANUARY 2022 e-FOREX 23

DMALINK grows
market share
DMALINK is an established independent electronic price discovery and execution venue for
professional traders with a particular focus on Emerging Markets FX. Recently, the firm launched
DeFinity Markets, a custody-agnostic institutional digital asset ECN. Both firms have been rapidly
growing market share so we asked Michael Siwek, Founder and Global Head of Sales, to tell us more.
PROVIDER PROFILE
Michael Siwek
What types of firms are utilising
your solutions and what are they are
looking for from your platform?
Platform participants include funds,
asset managers, proprietary trading
houses and banks transacting cash FX
and precious metals regularly using
our central counterparty clearing and
settlement model underpinned by
Natwest Markets. We are also actively
pushing into the corporate client space
by offering innovative boutique-style
credit solutions. Clients can use the
DMALINK platform for cash FX and
precious metals execution, reporting,
analytics and TCA benchmarking.
Please tell us about your market
coverage and the benefits of
DMALINK’s approach to liquidity
provision.
DMALINK provides access to liquidity
across 28 base currencies in the FX
Spot market with a strong capability
to fill trades across CLS and non-CLS
currencies in large tickets and during
times of market volatility. All trades
are matched and booked by industrystandard
straight-through-processing
(STP) back-office systems.
The DMALINK model is multi-lateral,
meaning all market participants can
access the liquidity of and trade
with all participants on a nondisclosed
basis. All transactions are
cleared through our central clearing
counterparty Natwest Markets, which
can match any buyer with any seller,
creating a true client-to-client trading
experience.
The DMALINK approach to liquidity
is agnostic. We work closely with
liquidity providers and price takers to
create customised liquidity pools based
on trading style, location, currency
coverage and trade size. Liquidity
providers and takers are matched
accordingly, optimizing fill rates while
minimizing rejection rates.
What do clients value most about
DMALINK in this highly competitive
industry?
DMALINK at a glance
Recent developments suggest a push
towards the co-existence of traditional
and digital currencies, including
ongoing government effort towards
central bank digital currencies (CBDC).
As such, we see an increase in client
demand to bridge the gap between
“old and new money”.
24 JANUARY 2022 e-FOREX

PROVIDER PROFILE
DMALINK at a glance
Clients value our ability to offer
access to both worlds where they
can execute, track and store their fiat
and digital assets using DMALINK
and DeFinity ecosystems. The add-on
flexibility of a custody-agnostic venue
with support for known protocols
such as FIX gives our institutional
clients the required comfort to meet
ongoing market demand. We believe
the key to value is innovation through
technology and rapid adaptation of
new methods of transacting, clearing,
and settling trades.
DeFinity recently recorded the
world’s first live cash FX trade to its
permissionless layer-1 blockchain.
Why is this a game-changer for the
industry?
Embracing new technologies is critical
for any industry. When considering
the OTC FX market, it offers many
advantages over other asset classes.
However, there are certain drawbacks
such as price opaqueness, lack of
uniform trading standards, and no
impactful reporting requirements for
cash FX products. As markets evolve,
clients, venues, and regulators will
welcome transparency across the trade
cycle’s operational, transactional, and
analytical aspects.
Our layer-1 blockchain provides a
platform for regulatory requirements
and best practice standards.
From an operational perspective,
buy-side and sell-side firms can use
our technology to effortlessly establish
the actual execution cost and share
the information with third parties. All
counterparties can elect to record their
transactions to our permissionless or
permissioned ledger.
Last year was an exceptionally busy
one for DMALINK. What were the key
highlights for you?
Absolutely. To expand the eFX
offering, we have integrated with
Traiana’s Netlink product to support
trade aggregation services for
our clients. This product is being
gradually rolled out across new
platform participants, helping to
reduce transaction costs and improve
reporting of trades. Nomura has
joined DMALINK in anticipation of our
Manu Choudhary
Singapore data center go-live across
cash FX and NDFs.
We partnered with Axyon AI adding
deep learning artificial intelligence
models to the platform, soon available
as algos to bank and buy-side clients.
In line with our planned emerging
markets expansion, we have partnered
with the Financial Markets Association
Russia to facilitate deep access to Russian
Ruble (RUB) liquidity for our clients.
Finally, we have been working on our
Cobalt partnership across our digital
product suite of the DeFinity platform,
offering clients institutional custody
and execution services.
What is DMALINK going to be focused
on in 2022 in terms of further product
development and business growth?
The key focus in 2022 will be to
interconnect DeFinity further with
the DMALINK platform offering
clients seamless access to eFX and
digital asset execution, reporting, and
settlement services underpinned by
our proprietary layer-1 blockchain
optimised by deep learning
artificial intelligence. Our CEO
Manu Choudhary will share further
information about upcoming digital
and cash FX projects at the TradeTech
FX conference in Miami on February
17 at the Eden Roc.
JANUARY 2022 e-FOREX 25

TRADING OPERATIONS
Exploring the benefits of
White Labelled electronic
FX option platforms
By Vivek Shankar.
26 JANUARY 2022 e-FOREX

TRADING OPERATIONS
The FX market is a highly diverse
place, with institutions trading
multiple assets of varying complexities.
FX options typically do not account for
the heaviest trading volumes but are
a significant part of any firm’s trading
operations. The Bank of International
Settlement’s 2019 Triennial survey
noted that FX options trading volumes
were valued at $219 billion daily
during that year.
While this number pales in comparison
to outright forwards volumes, it is
greater than volumes in currency
swaps. Options trading strategies can
get complicated in a hurry and most
firms used to view heavy technological
investment as a negative ROI
proposition.
However, thanks to changing
regulations causing banks to
reevaluate their costs and increase
efficiency, FX options technology
adoption is increasing, particularly
white-labeled solutions. These
platforms allow firms to instantly
upgrade their current infrastructure
and customize the platform according
to their needs.
“FX Options are one of the last
remaining FX instruments that
are highly profitable yet not fully
automated,” says Ludovic Blanquet,
Chief Product and Strategic Planning
Officer at smartTrade. “Banks would
love to keep this flow in-house. Also,”
he continues, “MDPs and other multimarket
maker platforms have yet to
offer a credible alternative to the mix
of automation and advice that White
Label solutions offer.”
So just how effective are these white
label solutions and are they worth the
investment?
A WIDE RANGE OF BENEFITS
Perhaps the best place to begin
looking at white label FX options
platforms is the benefits they bring to
the table. Regulatory changes have
left a considerable impact on firms’
trading workflows, causing them
to minimize costs due to increased
compliance infrastructure. The only
way to adhere to new regulations
is to increase electronification. The
common view is the benefits that
electronification brings to other lines
of business will undoubtedly spread to
options workflows too.
While they aren’t regulations, recent
changes to the GFXC’s Global Code
have placed the onus on firms to
justify every trading decision they
make. Given the complexities involved
in the average options trade workflow,
the best method of capturing an audit
trail is an electronic solution. Thus,
justifying trade and risk decisions
becomes simple, since every action is
automatically documented.
Mark Suter, Executive Chairman and
Founder of Digital Vega, believes the
hurdles of in-house infrastructure
management might be problematic
for firms to overcome, and white label
options are an all-encompassing and
cost-effective solution. “Running a fully
fledged FX option service for clients
requires a huge initial investment and
significant ongoing running costs,”
he says. “Such technology is very
expensive to develop internally and
experienced development resources are
rare and expensive.”
Another benefit that white label
solutions bring is the ability to
offer an instant technological and
infrastructure upgrade. Firms can get
started with best-in-class execution
and analytics out of the box. This
saves them from having to invest
in expensive infrastructure and
maintenance.
Leveraging third party expertise also
gives firms insight into industry best
JANUARY 2022 e-FOREX 27

TRADING OPERATIONS
Source: Digital Vega
Exploring the benefits of White Labelled electronic FX option platforms
“FX Options are one of the last remaining FX instruments that
are highly profitable yet not fully automated,”
Ludovic Blanquet
practices and updates, something that
would be expensive and resourceintensive
to implement in-house.
Solutions such as smartTrade’s
white-labeled platform offer proven
technology at low latency along
with colocated services. As Blanquet
puts it, “Trading with a large, wellestablished
white label platform gives
you the confidence that the risks are
understood and managed. If things
turn sour, you will be supported.”
Typically, these solutions come
bundled with highly customizable
user interfaces and integrate with
existing infrastructure via fix and ReST
APIs. The result is a seamless trading
experience and quick onboarding
times for FX options traders.
CORE FUNCTIONALITY
The core functionality of white-labeled
FX options platforms aligns with
what market participants desire in
their trading workflows. For instance,
smartTrade’s solution for FX options
features aggregated liquidity pools
across asset classes as a part of
their broader trading solution. “In
addition,” says Blanquet, “we also offer
connectivity to multiple LPs, aggregated
or not prices in Premium, Delta and a
long list of options types being offered.
All of these are complemented by a
roadmap for future enhancements.”
Most white label solutions also feature
advanced analytics that allows firms
to track patterns and keep tabs on
correlations in their trading workflows.
Metrics such as market depth, slippage
ratios, holding times by venue, fill
probabilities, rejection rates, and
trade times bring deep insight into
trading operations. Not only do they
improve execution, but they could
also potentially power new trading
strategies.
The GFXC’s recent guidance
regarding the implementation of
TCA in trading workflows and the
Most white label solutions also feature advanced analytics that allows firms to track patterns and keep tabs on correlations in their trading workflows
28 JANUARY 2022 e-FOREX

TRADING OPERATIONS
importance of rejection rates during
last look windows has meant sell-side
firms need analytics backup to justify
performance. White label platform
analytics allow them to meet these
standards easily and build transparency
in operations. In turn, this strengthens
relationships with the buy-side as well.
Digital Vega’s Suter highlights
detailed reporting and audit trails as
just one important pillar of a great
white label platform. “A significant
breadth of product, from vanilla
structures, structured products, and
first generation options, is something
firms should expect out-of-the-box,”
he says. “Sophisticated routing rules,
mark-up automation, real-time limit
and exposure monitoring, and deep
aggregated liquidity are some of the
other core functionality that should
come as standard.”
Buy-side firms tend to use a range of
execution management systems such
as post-trade STP, credit, risk, and
OM systems. White label FX option
solutions integrate with these systems
easily and firms experience almost
no disruption in their regular trading
flows. As previously highlighted, these
integrations occur thanks to ReST and
Standard Fix APIs.
Despite featuring many out-of-the-box
solutions and functionality, white-label
platforms are anything but rigid. In no
particular order, Suter highlights the
multiple ways in which Digital Vega’s
platform can be customized. “Our
end user trading interface is highly
customizable, along with end user risk
management, analytics, and reporting
tools.” He also points out that their
solution will ultimately be mobilefriendly.
“Clients can also automate liquidity
optimization,” he continues, “House
and client price formation are also
standard features we offer.”
Highly customizable user interfaces
allow firms to maintain the same look
and feel throughout their trading
systems. This might seem like a minor
point, but maintaining interface
consistency throughout asset classes
reduces instances of manual errors.
It also reduces the time it takes for
traders to get up to speed with the
new system.
Customization extends beyond the UI
to the inner workings of the system.
For instance, sell-side firms can help
firms create, manage, and distribute
prices via multiple channels. They can
also create custom liquidity profiles
for groups of clients, apply tiers, and
distribute via white-labeled HTML5
portals.
The risk management modules on
these platforms can be configured to
include firm-specific hedging rules,
despite offering a wide range of
out-of-the-box auto-hedging rules.
Thus, risk management and credit
monitoring become simple. Firms can
define flow-based rules to obtain full
control over the execution process.
“Technology has become so versatile
and agile nowadays that we can offer
workflows and enhancements to
tailor the platform each customer’s
needs,” says smartTrade’s Blanquet.
“Customisation is therefore open to
the extent that the bank can price the
instruments and integrate it with its
existing post-trade solution.”
The result is lower costs from firms
using white-labeled platforms thanks
to increased trading efficiency
obtained via powerful analytics. Firms
can also save money due to not having
to maintain costly infrastructure or
personnel in-house. By leveraging
third-party expertise, they can offer
tailored solutions to their clients while
maintaining brand positioning and
custom UIs.
One of the most important issues facing firms when adopting white label solutions is determining the time it takes
to get their traders on board and up to speed
CHOOSING THE RIGHT PROVIDER
As with any technological choice, the
right service provider makes all the
difference. Operating license models
tend to be flexible. Suter mentions
that they tend to vary from pure
license fees, to revenue share, or a
combination of both. Good service
JANUARY 2022 e-FOREX 29

Exploring the benefits of White Labelled electronic FX option platforms
TRADING OPERATIONS
“A significant breadth of product, from vanilla structures,
structured products, and first generation options, is something
firms should expect out-of-the-box,”
Mark Suter
providers tend to have proven and
reliable technology that has been
battle-tested. For instance, service
providers who release constant
updates and disrupt operations are
unreliable because their internal code
lacks agility.
Good service providers also
understand their clients’ needs
deeply. These days, cost optimization
is a major issue in the institutional
markets. A good service provider
understands important points in trade
workflows that lend themselves to
optimization. For instance, TCA can
be a difference-make for both buy
and sell-sides thanks to analytics
highlighting execution trends.
They also bring greater transparency
to the market. Given the complexity
that the average FX option workflow
has, a good white label service provider
will back their offerings with a robust
analytics suite. Technological ability
also plays an important role since
most firms will need their solutions to
integrate with legacy infrastructure.
One of the best ways to get a feel
for a service provider’s abilities is
to examine their reputation and
behaviour during periods of extreme
market volatility. These moments
stress-test platforms. An ideal service
provider is both flexible and offers a
solid foundation on which to build
improved workflows.
One of the most important issues
facing firms when adopting white
label solutions is determining the
time it takes to get their traders on
board and up to speed. The best
service providers are upfront about
onboarding times and offer a good
degree of customization and training.
“The majority of work stems from
the lack of automation or real-time
ability surrounding options trading,
specifically post-trade integration,”
says Blanquet. “We’re noticing more
new entrants coming from other asset
classes who tend to under deliver
because of their mis-understanding
of the FX market’s idiosyncrasies.”
He points out that firms need to look
for providers with a track record of
delivering, a stable financial profile
and a clear roadmap focused on the
FX asset Classes.
“smartTrade is committed to empower
Financial Institutions with intelligent
trading platforms. Our recent
combination with TickTrade is further
proof that we understand FX and see
a bright future in this space,” he says.
HOW WILL SOLUTIONS EVOLVE?
Technology is rapidly improving and
there’s no doubt that the current
state of the market will evolve
soon. Currently, features available
on white label platforms are being
distributed to firms with considerable
resources, but this might change
soon. Technological improvement has
generally democratized access and this
should be the case with the FX options
market too.
Suter points to exotics as an area
where new functionality is in the
works. “ Digital Vega will shortly roll
out a full version of the platform,” he
says, “that will support both 1st gen
and some structured products as a
rebrandable, white label solution.”
The market itself will dictate how
white label solutions evolve. For
instance, the increased use of exotic
options with custom payment
structures and unique expiration
dates and strike prices will dictate
the next iteration of features service
providers will integrate on their
platforms. Automation is rising
everywhere in the market and FX
options should be no exception.
For instance, constructing options
structures that minimize risk based
on market liquidity levels and
projecting trade outcomes based
on probabilities lends itself well to
algorithmic automation. Currently,
all white label platforms allow
firms to connect to their preferred
algo providers and as their usage
increases, we might see interesting
developments in this regard.
For instance, algo options usage
might rise along with trading
strategies based on actionable
volatility spreads. As the options
market continues to mature,
technology is both driving changes
and evolving because of them. As
such the ceiling for innovation is
high and the future promises many
exciting developments.
Blanquet hopes the market will
eventually turn from a voice-based
to an electronic one. “We need to
expand the instrument coverage and
the convenience to trade complex
instruments. Here AI and natural
Language recognition tools will help
to turn the voice business into a digital
one!”
30 JANUARY 2022 e-FOREX

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JANUARY 2022 e-FOREX 31

Unique Algo density
metric from BestX
A large number of FX trades are now completed using algorithms but until now it has been impossible
to find the most liquid point at which to trade. To address this BestX has released technology that will
allow FX traders to identify the optimum time to trade FX algorithmically.
Many FX trades are completed
hedge FX risk with at an external
These algorithms may be yet further
automatically using execution algos
venue which in turn limits signalling
designed to execute more flexibly to
yet the ability to analyse those
risk.”
achieve a better price, causing even
trades and identify when best to
make them has been impossible.
UNDERSTANDING ALGOS
greater deviation from an execution
schedule, making it harder still to
Yangling Li, Head of Quant
But identifying when most trades are
identify when trades are taking
PRODUCT REVIEW
Research at BestX, says FX traders
need to have transparency over
the timing of all trades – be they
spot or algo - if they are to avoid
information leakage or signalling
risk.
“Signalling risk – or information
being conducted using algorithms
is easier said than done. Among
the challenges is the time taken to
conduct certain algo trades.
For example, time-weighted average
price (TWAP) algorithms divide large
orders into smaller ones which are
then spaced out over time. The idea
place.
EIGHT MILLION TRADES
Given that BestX was born out
of the demand for independent
analysis to enable traders to
‘implement a flexible, rigorous,
justifiable and repeatable execution
leakage - is a problem for FX
is to reduce market impact and may
process in accordance with market
traders, particularly in markets
see a trade completed over many
and regulatory evolution’, it is no
where liquidity is reduced,” Mr Li
hours.
surprise they had the technology and
says. “If firms can identify when
expertise to devise a solution.
trading volumes are at their highest,
Mr Li says: “Finding the density of
they can choose to execute trades
spot trades is very simple; every five
Mr Li says BestX’s algo density
at those times and then match
minutes sum up the trades and then
metric provides FX traders with the
internally. This avoids having to
you check the average across the
information they need to identify
month which produces a nice curve.
when most algos are traded, even if
Algos are different as they can last
they were executed over long time
for hours for example starting at
periods, by examining eight million
8am and ending at 4pm.”
trades in the company’s database.
Starting on the 1 January 2021 and
The ability to understand TWAP
ending on 10 October 2021, based
trades are made even more
on the London time zone, BestX’s
complicated by versions that
metric produced interesting results
introduce randomisation in the
timing of execution. For example, a
Mr Li says: “We found that the
60-minute trade that has been set
algo volume profile is very different
to trade once every minute, may be
from the one we have observed for
reconfigured to execute randomly
spot trading and that the peak algo
to reduce the predictability and
density it as 4pm London time. We
Yangling Li
signalling from orders.
also found that the algo usage picks
32 JANUARY 2022 e-FOREX

PRODUCT REVIEW
up smoothly at Asian and London
time and then drops sharply at New
York time.”
The algo density metric was also
able to determine the times when
different kinds of algo were traded
most heavily.
Mr Li says the Interval algo proved
popular during the European
afternoon, while the Opportunistic algo
has smoothed usage and is ‘the most
popular across the board’. BestX also
detected the algo density by currency.
WELCOME DEVELOPMENT
The upshot of the advent of a fully
functioning algo density metric is
improved efficiency and heightened
execution for FX traders. Mr Li says:
“The metric has proved popular
because the buyside can compare their
own algo density against the overall
market and understand why they
might not be trading well, or if there is
any room for improvement.”
And Mr Li believes the metric will
influence how FX traders behave,
ultimately determining when they trade
and delivering best execution.
“If we think about the dark ages when
there was no data and traders operated
at random; there were huge spreads.
As time has gone by, more market data
has helped them trade at more liquid
times and with better results. Now we
have an algo density metric and even
more information about what the
market is doing which will have real
benefits for best execution,” he says.
Intraday algo density profile
• 16:00 London time finds the peak of algodensity
• Usage of algopicks up smoothly at Asian and London time
• The algodensity drops sharply at new York time
Intraday algo density profile by algostyle
• Interval Algo is the most popular at European afternoon
• Opportunistic algo has smoothed usage and is the most popular across the board
“The G10 algo usage is smooth
while emerging market algo usage
jumped up at European afternoon,”
Mr Li says.
BestX’s algo density metric offers
important transparency for FX
traders, with the result of better
pricing, smoother trading and
ultimately far better execution.
Intraday algo density profile by ccy category
• G10 algo usage is smooth
• EM algo usage jumped up at European afternoon
JANUARY 2022 e-FOREX 33

Baton Systems
Redefining FX post-trade processing
THE E-FOREX INTERVIEW
Arjun Jayaram
34 JANUARY 2022 e-FOREX

THE e-FOREX INTERVIEW
Award winning Baton Systems is looking to shape the future of payments and post trade processing. Its
distributed ledger-based platform enables real-time visibility and movement of currencies and assets,
reducing settlement risk and increasing available funding and liquidity. e-Forex spoke with the company’s
Founder and CEO, Arjun Jayaram, to find out more about how Baton Systems is introducing fully
interoperable digital solutions, from trade matching through to settlement, and the impact this will have
on the FX market. Arjun was also joined by three colleagues from Baton’s senior management team: Alex
Knight, Head of EMEA; Jerome Kemp, President and David Ornstein, COO; to discuss the significance of
Baton’s recent completion of the world’s first interbank riskless FX settlement outside of CLS.
Arjun, can you tell us about your
previous experience in Fintech and
explain how that led you to tackling
a very specific challenge in the
capital markets space?
Baton Systems is actually the second
company I’ve founded, my first
company was acquired in 2013.
Following its sale I moved to Twitter
and from there into payments.
My background is in engineering,
technology and product development
and so I was able to develop a
deep understanding of the complex
constraints of the problems in
the payments arena. Through a
relationship with the CME, I was
introduced to capital markets and to
Baton’s now President, Jerome Kemp,
who was at Citigroup at the time and
actually became our first client.
challenges we now face is ensuring
we continue to protect the same core
values and strong ethos that have
been integral to our success to date.
Please tell us a little about your job
and day to day responsibilities at
Baton Systems.
As Founder and CEO my focus
is primarily on strategy from a
technology and product definition
perspective. As I mentioned, we
are now moving to the next step as
we start to see non-linear growth
with interest continuing to increase
from firms keen to take control and
effectively address the risk, liquidity
and funding issues that have plagued
FX settlements, and other capital
markets payments processes, for far
too long.
At the moment, we move somewhere
between $12 billion to $20 billion
of asset value each day, but I am
focused on how we can grow
this by many multiples. That scale
As I learnt more about payments and
post trade, I came to realise there are
fundamental structural issues that
play a massive role in the colossal
level of settlement risk faced by FX
businesses every day. My passion to
solve this problem and democratise
access to the financial market
infrastructure necessary to execute
real-time, riskless settlements without
the burden of pre-funding led to me
founding Baton Systems about six
years ago.
We are now at an exciting stage
in our corporate evolution, we’re
rapidly maturing and beginning to
really scale the business. One of the
Jerome Kemp joined the firm as President last year
JANUARY 2022 e-FOREX 35

Baton Systems - Redefining FX post-trade processing
on both a banks’ risk profile and it’s
bottom line.
We’re also privileged to count both
J. Christopher Giancarlo, Director
of The Digital Dollar Project and
former CFTC Chair, and Bill Coen,
former Secretary General of the Basel
Committee on Banking Supervision,
as Senior Advisors to Baton. Their
backgrounds speak loudly to the
importance of the regulatory
agenda relative to Baton’s objective
to transform post-trade market
structure.
THE E-FOREX INTERVIEW
Alex Knight brings a wealth of global experience in the industry
will come from focusing not just Fame. Jerome is someone I respect
on the technology and product a lot and as Baton’s president, he is
but by thinking about our whole now empowered to work towards
organisation, which is why we’ve finally solving the key post trade
been laser focused on augmenting and structural issues which kept him
our team with the right people with awake at night whilst in his previous
the necessary skills and experience senior leadership roles at Citi and J.P.
to help us to achieve our growth Morgan.
ambitions.
Like Jerome, Alex Knight also brings a
Baton has certainly attracted a wealth of global industry experience.
number of top class technology, Alex joined Baton as Global Head of
payments and capital markets Sales and EMEA in 2019, following
veterans. Who are the key members 18 years at Citi where he held a
of your executive team and what number of roles in innovative FX
roles do they each play in helping to business lines including Global Head
drive the business forward?
of FX Margin Trading. Together with
Jerome, Alex is helping us to grow
I’ve already mentioned Jerome Kemp, the commercial side of the business.
who joined Baton initially as a Senior
Advisor and was appointed President I brought in people like Alex and
last year. He’s a leading industry Jerome because they are experienced
practitioner with over 35 years of in not just building businesses but
markets experience, most recently as they’ve witnessed first-hand the
Global Head of Futures, Clearing, and extensive challenges that limited
FXPB at Citigroup. Last year he was access to safe settlement mechanisms
inducted into the FIA Futures Hall of and slow settlement cycles can have
Most recently we have added David
Ornstein to the team. He joined
Baton as COO this January. David
brings 25 years of capital markets
experience, including 13 years as
COO of Barclays’ Global Markets
business where he was particularly
focused on both the regulatory
change and business reengineering
agendas. He brings to the team a
deep appreciation of the intractability
of legacy infrastructure in financial
markets along with keen insights as
to how to help institutions better
optimise their end-to-end operational
workflows and ultimately reduce
costs.
Turning to Alex, what type of
firms are now working with Baton
and looking for it to meet their
demands for capital efficiency, risk
management and the competitive
advantages that are always
associated with the use of next
generation technology?
If you look at our client list, you’ll
see it’s the world’s largest financial
institutions where our main focus
has been so far. We are continuing
to have very detailed discussions
with nearly all of the major banks
globally around the critical issues that
they have regarding FX settlements
and intraday liquidity management
36 JANUARY 2022 e-FOREX

THE e-FOREX INTERVIEW
in their capital markets businesses.
We are now starting to broaden
our focus as we seek to serve banks
outside of that very top tier, as
well as members of the buy-side
community.
The challenges that most large banks
face is that they operate their post
trade systems on legacy platforms
and those legacy platforms are
generally siloed. This adds to the
complexity of the problem when
these firms consider how to reengineer
their post trade processes
- and as we know, ripping out and
replacing critical elements of the
post trade infrastructure is risky, time
consuming and expensive.
As such, whilst we find when
speaking with potential clients
that the value proposition of our
blockchain-inspired Core-FX solution
is well understood, that with this
technology the riskless settlement
of all currencies pairs, at a time they
choose, without pre-funding would
be within their reach, we spend
a lot of time demonstrating the
interoperability of the Baton platform
with existing legacy systems. These
Baton continues to win important industry awards
conversations focus on how we can doesn’t disrupt their existing process,
securely and seamlessly integrate but rather enriches it.
into existing systems and processes
to deliver the flexibility, transparency, Jerome, a major challenge for
auditability and non-repudiation financial market participants is how
benefits of distributed ledger
to deal with the trillions of dollars
technology (DLT) in a manner that of settlement risk and how to tackle
intraday liquidity costs. Recent
updates to the FX Global Code
included changes to recommended
best practice for FX settlements.
What was Baton’s response to these
challenges and in what ways do they
underline the advantages of your
own solutions?
David Ornstein brings to the team a deep appreciation of the massive intractability of legacy infrastructure in
financial markets
This is a very important point and one
which I believe is going to be critical
in terms of the overall evolution of
the post trade space. These processes
currently run on hardwired, server
based networks and the move to fully
digitised post trade infrastructure
over the next few years will be reliant
on the regulators stepping in to
encourage innovation.
JANUARY 2022 e-FOREX 37

Baton Systems - Redefining FX post-trade processing
THE E-FOREX INTERVIEW
Core-FX provides on-demand, secure settlement for real assets, held in real accounts at commercial banks, so it can be used for all currencies
We are very engaged with regulators
in the US, the UK and elsewhere.
Indeed both Arjun and I were recently
invited to sit on the working group
of the Committee on Payments and
Market Infrastructures (CPMI) charged
with examining the expansion of PvP
solutions. Our regulatory engagement
is focused on the evolution and
development of approaches that
will accommodate the considerable
transformational impact that
companies like Baton are having on
the post trade environment.
Global regulatory bodies are keen to
see the post trade space evolve and
are very inclusive in terms of their
approach. I believe that by and large
global regulators are encouraged
by the progress being made. We
are essentially constructing a new
ecosystem which allows for a very
significant expansion of riskless
settlement for FX transactions,
beyond what is currently possible.
Regulators are very keen to see access
to PvP settlement within the reach
of significantly more participants
and cover a much greater range
of currencies relative to the status
quo, and Baton is proving that this is
indeed possible.
And coming back to Arjun, Baton’s
Core-FX solution has been in the
news recently after Wells Fargo and
HSBC completed the first interbank
PvP settlement outside of CLS using
distributed ledger technology from
Baton Systems. Can you explain
the significance of this, for both the
company and the industry?
FX is the largest OTC market with
close to $19 trillion of average daily
volume exchanged, but the only venue
where those trades can be settled
with the benefits of PvP is CLS, which
has 78 members currently and only
supports selected currencies. CLS does
solve a problem and has significantly
improved the FX market, but it is a
partial solution to the market problem.
The number of participants operating
in the global FX trading ecosystem
is in the tens of thousands, all of
whom need access to safe settlement
processes. Furthermore, there are over
100 currencies that need to be settled.
We are focused on delivering the
technology required to safely settle
those FX trades that are currently
ineligible for PvP protection via CLS, in
order to extend the benefits of riskless
settlement to the entire market.
By using DLT, we have enabled
banks to connect into Baton’s
CORE-FX to move funds on a PvP
basis in commercial bank money.
Using Core-FX the settlement
process can now be completed in
three minutes. Counterparties can
settle on-demand, multiple times a
day without the liquidity constraints
that pre-funding introduces. This is
achievable with full transparency and
extensive flexibility that allows the
parties to not only choose how they
net or whether they settle in gross,
but also to align settlement timeframes
with corresponding liquidity
events.
38 JANUARY 2022 e-FOREX

THE e-FOREX INTERVIEW
It is not just the technology that
we offer, but also the governance
and structure we provide with the
Baton Rule Book, which enables
participants to achieve legal
settlement finality.
Can you elaborate on which
currencies you cover and what the
process is for increasing the number
of currencies?
Core-FX is currency agnostic, we have
actively settled 18 currencies to date,
and have the ability to quickly add any
currency to the network, including
emerging market currencies. These
currencies have experienced rapid
growth in traded volumes over recent
years, yet they remain ineligible for
PvP settlement via CLS. They are often
highly volatile with shallow liquidity
and this leads to more constraints
being applied in terms of the trading
facilities made available.
As has been mentioned, Baton CORE-
FX is based on DLT. David, why is
this technology such a good fit for
payments and post trade services in
meeting this challenge and why has it
not been done before?
I used to see a lot of start-up pitches
based on DLT, but often those
solutions were too much “Tech” and
not enough “Fin;”. By this I mean
that they didn’t really understand
the complexity of the actual financial
ecosystem well enough to navigate
the journey from the test bench to live
deployment and actually delivering
business benefit. Many of the FinTechs
who plan to rip and replace aren’t
adequately cognisant of the challenges
in delivering essential infrastructure
in production, at scale. Organisations
can’t absorb change that quickly and
won’t be able to secure the permissions
needed to do that. You’ve got to be
able to very clearly justify why you’re
tinkering with an essential service.
Backed by a robust rulebook, with Core-FX clients can benefit from the latest advancements in DLT, with the
certainty of a defined governance process
The way Baton is using DLT is different. It
builds rails which run alongside existing
systems and infrastructure. Baton
facilitates the move from centralised
to decentralised settlement without
disrupting existing functions. It provides
a viable alternative to the current
process and workflows and facilitates a
responsible and progressive migration,
while offering full interoperability with
existing legacy technologies, so there
is no immediate need to try to rip and
replace 30 years of code.
Finally Arjun, you have previously
said that the world of clearing and
settlement is on the threshold of
revolutionary change. How ambitious
are Baton’s plans for playing a pivotal
role in this and how optimistic are you
that you and your team will be able
to achieve them?
We are very optimistic. Our mission is
to democratise the settlement process,
improving it greatly from the current
system characterised by centralised
venues which exclude so many
participants from the opportunity
to safely settle their FX trades. You
cannot solve this problem until you
solve the market structure issues. I’m
excited because this is not a concept,
a prototype or a project, we’re now
laying the rails and in a live production
environment actually executing riskless
settlements on a daily basis. What
we’re doing is truly game changing.
Every time we onboard a bank, that has
a snowball effect and leads to further
adoption. We can add unlimited banks,
from multiple geographies, who will
then be able to eliminate risk by using
our platform for settlement. We see this
as very much a win/win situation, not
only for the large sell side banks, but
also for their clients downstream and we
are already seeing a significant uptick
in interest following our December
announcement. The whole team and
myself included are very excited about
our progress so far and the significant
role we are playing in the long-awaited
evolution of payments and settlements
in the financial markets.
JANUARY 2022 e-FOREX 39

Baton Systems - Redefining FX post-trade processing
THE E-FOREX INTERVIEW
40 JANUARY 2022 e-FOREX

THE e-FOREX INTERVIEW
DAVID AND I AND THE WHOLE
TEAM ARE VERY EXCITED
ABOUT OUR PROGRESS SO
FAR AND THE SIGNIFICANT
ROLE WE ARE PLAYING IN THE
LONG-AWAITED EVOLUTION OF
PAYMENTS AND SETTLEMENTS
IN THE FINANCIAL MARKETS
JANUARY 2022 e-FOREX 41

CASE STUDY
Boosting Treasury
in India
Jörg Bermüller
German vibrant science and technology company Merck has turned its treasury business in India inside
out. Jörg Bermüller, Head of Cash and Risk Management in Group Treasury at the firm outlines how his
team reduced FX risks, optimised liquidity and streamlined processes in an award-winning project with
Deutsche Bank.
Founded in 1668, Merck is the
world’s oldest operating chemical
and pharmaceutical company, as well
as one of the largest. The range of
products the German company offers
is wide; Merck KGaA – or Merck EMD
as it is known in North America –
develops new cancer treatments, sells
pigments for the automotive industry,
and produces OLEDs which enable a
new generation of lighting to name
just a few of its business activities.
The company is headquartered in
Darmstadt.
Despite its long history, some of the
most radical changes have taken
place only recently. In 2015, Merck
bought the American biotechnology
company Sigma Aldrich for €13.1bn –
extending not only the company’s life
science business but also increasing its
presence in North America as well as
in several fast-growing Asian markets.
Four years later, the pharma company
landed another major deal, acquiring
Versum Materials, a US semiconductor
solutions specialist, for €5.8bn. Merck,
headquartered in Darmstadt, now
has 58,000 employees globally and
42 JANUARY 2022 e-FOREX

CASE STUDY
Source: © Merck KGaA, Darmstadt Germany
a presence in 70 countries across and question every single process
Europe, Africa, Asia and the Americas. of the local treasury operations,” he
Over the last 10 years, the company says. Last year, the team turned to
has almost doubled its revenue – from India, where the company operates
€9.3bn in 2010 to €17.5bn in 2020. four business entities in Mumbai and
Bangalore.
FROM CENTRAL TO REGIONAL
This tremendous growth has
Following a thorough internal analysis
persuaded Merck’s treasury to
and a beauty contest among nine
rethink its global set-up. “We used banks, Merck decided to team up
to have a very centralised approach,” with Deutsche Bank to reduce FX risk,
recalls Jörg Bermüller. “But with leverage new technologies like Robotic
Asian countries like South Korea or Process Automation (RPA) and roll out
Taiwan reaching a significant size of its global payment factory in India. For
turnover, we decided that setting up this achievement the company won
regional treasury centres would allow the “Best in Class Treasury Solution
for a more efficient management of in India” category in the Adam Smith
treasury activities going forward.” Awards.
Since 2018, the company has
operated treasury centres in
TURNING TREASURY INSIDE OUT
Montevideo (Uruguay) and Manila But let’s start the story from the
(Philippines), as flow reported in beginning: In a market like India,
the June 2020 article ‘A healthy there are various challenges for an
approach’. At the same time,
optimisation programme of the
Bermüller and his team have begun scale that Merck was planning. The
to reshape the set-up in each country country’s restrictive monetary policies
to streamline processes, increase and highly regulated financial market
transparency and reduce operational affected day-to-day operations, and
costs.
the company was facing large FX
impacts with limited ability for local
Every project takes from 15 to 24 hedging.
months, Bermüller explains, with
the treasurer and his team acting Additionally, manual local processes
as consultants for the local entities. and a fragmented banking landscape
“We are starting with Adam and Eve across the four legal entities created
Merck campus from bird’s eye perspective in Darmstadt, Germany.
multiple inefficiencies. “We wanted
to become faster, more transparent
and reduce frictions,” says Bermüller.
Drawing a comparison with European
football, he adds: “We were playing
in the Bundesliga, but our goal was
to have a treasury set up in India that
could win the Champions League.”
Consequently, the whole treasury
business in India was turned inside
out: cash management, foreign
exchange risk management, liquidity
management and working capital as
well as treasury reporting was put on
the table. “This holistic approach was
what made it special and challenging
at the same time. Every gear had to
mesh together.”
Among the most important gears
was choosing the right bank. “In
general, we are only working with
one bank per country and currency
to achieve best process efficiencies,”
Bermüller explains. In June 2020,
Merck launched a request for proposal
in India. It was a very tight race, he
recalls, with Deutsche Bank winning
the full banking mandate for two
reasons. “First, Deutsche Bank’s
strong cash management capabilities
enabled Merck to utilise our payment
factory for more than 25 payment
types paperless via SWIFT. Second,
Deutsche Bank understood Merck’s
needs best and empowered us to fully
automate all processes connected to
banking like reconciliation and global
hedge adjustments.”
RULE-BASED FX HEDGING
The innovative hedging process is
one of the key features of the new
treasury set up in India. To understand
why, one needs to know that the bulk
of Merck’s inbound and outbound
cross-border flow in India are intercompany
payments. In the past,
these flows were invoiced in euro or
US-dollar, but Merck wanted to switch
into Indian Rupee, thereby moving
the FX exposure to its headquarters.
JANUARY 2022 e-FOREX 43

Source: © Merck KGaA, Darmstadt Germany
Boosting Treasury in India
Merck’s production site in India
“Many companies manage their
intercompany flows in India on a
monthly basis with FX hedges being
scheduled to that specific date,” says
Harald Abel, expert for electronic
FX management at Deutsche Bank.
While this means the company
only needs to execute 12 hedging
transactions a year, it also requires
cash to be managed in India, thus
creating administrative work.
Another disadvantage is the lack of
flexibility. “If a large payment needs
to be executed, the hedge has to be
adjusted,” Abel explains. At Merck
this has now changed.
CASE STUDY
Source: Image by Shutterstock
At the same time, to keep hedging
costs low, Merck strove for a frequent
automated payment process including
headquarter hedge adjustments.
This move was accomplished by
creating a rule-based, automated
workflow, based on Robotic Process
Automation (RPA) and designed
to work with minimal human
involvement. This is achieved via
a target balancing solution in
combination with immediate payment
due dates. In addition to reducing FX
risk, the new approach also allows
Merck to further optimise liquidity.
Under the new process, Deutsche
Bank starts to collect all data available
from customs and provides electronic
information to Merck including a
proposal of all payments, which can
be executed with the cash balances
available.
Merck releases those in a customised
web page, which is integrated into
an automated reconciliation process.
As Deutsche Bank actively collects all
data, Merck is no longer obliged to
support the payments with hundreds
of paper documents.
Merck strove for a frequent automated payment process which was accomplished by creating
a rule-based, automated workflow, based on Robotic Process Automation (RPA
REDUCING COSTS THROUGH
STANDARDISATION
After almost 24 months of planning,
implementation and testing, the
new structure was put in place in
summer 2021. “Everything is running
smoothly, and we are happy with
what we have achieved,” Bermüller
reports. He adds that the project has
led to savings in the single-digit million
range – thanks to the standardisation
and automation of processes. “This
enabled us to shift activities that have
so far been done manually to our
shared service centre in Manila with a
much smaller task force,” he explains.
In retrospect, the biggest challenge
for the treasurer and his team was
adapting to the fact that they could
not travel to India due to the Covid-19
pandemic. “Usually, we would sit next
to our local colleagues and watch how
for example an FX rate is captured
in our system,” says Bermüller. With
the treasury optimisation project in
India, however, Merck’s treasury team
needed to analyse the status quo of
treasury processes in Mumbai from
the Darmstadt office. “This required
much more communication and time
invest from my team.” And there is no
time to rest on their laurels, as more
countries are waiting for an overhaul
of treasury processes at Merck.
44 JANUARY 2022 e-FOREX

JANUARY 2022 e-FOREX 45

e-FX on the up
down under
REGIONAL e-FX PERSPECTIVE
Australia’s FX market continues to grow in both corporate and institutional
markets thanks to rising commodity prices and more activity from the
country’s super funds. There has also been an increase in the use of
algorithmic trading. Nicholas Pratt looks at how e-FX adoption can be
further encouraged through the major FX providers’ offerings, a post-Covid
recovery and a developing regulatory landscape.
46 JANUARY 2022 e-FOREX

REGIONAL e-FX PERSPECTIVE
Image by Shutterstock
Nicholas Pratt
has helped to reduce infection rates.
But the pandemic has also impacted
the region’s FX market. In particular,
it has led to a sharp lift in volumes
transacted through e-FX platforms,
says Peter, albeit a trend that started
before the pandemic and has either
continued or accelerated since. “The
proportion of total volume executed
through platforms increased from
49% in 2019 to 58% in 2020 - the
highest ever reported. Over 2021, the
proportion was maintained.”
According to financial research group
Peter Lee Associates, the reported
volumes in its corporate FX study of
Australia were up by 7% to A$323
billion in 2021, the highest level in
13 years. “The increased volumes
were mainly driven by a sharp lift in
resource prices, particularly iron ore,”
says Cameron Peter, chief executive
of Peter Lee Associates.”The reported
volumes from natural resources
respondents were up by 38% to
A$131 billion, the highest ever
reported.”
Both Australia and New Zealand
have imposed strict lockdowns to
limit the spread of Covid-19, which
Another feature of the region’s
FX market has been the greater
investment in the provision of
emerging markets and non-deliverable
forwards (NDF) products, although
the number of banks that can provide
a competitive service across these
products is limited, says Peter. “In
Australia there are the likes of HSBC,
ANZ and Westpac. However, there are
also the Japanese banks focusing on
these products as well.”
This year’s research also picked up the
first meaningful usage of algorithmic
trading by corporates, says Peter.
“Algorithmic trading by corporates is
still a nascent trend, but it is on the
increase. Of the 167 respondents in
the 2021 research, only five stated
they use algorithmic trading. The
FX currency option market is not
particularly active. Only 16% of the
173 respondents (27) report using
currency options,” says Peter.
Cameron Peter
“It is also anticipated that platform
usage will steadily increase amongst
corporates in Australia, as more
companies see the benefits of straight
through processing and finer pricing,
in addition to boards/executive
“A big influence on current and future trading activity is
the increasing volumes reported by industry super funds.
The reported FX volume of industry super funds has grown
substantially over the last five years.”
JANUARY 2022 e-FOREX 47

e-FX on the up down under
in Australia within the institutional
market, says Peter. “Of the 30
respondents that report total FX
volumes of A$10bn or more, 11
report using algorithmic trading, and
the proportion of their total volume is
also growing.”
The use of transaction cost analysis
(TCA) also continues to grow in
Australia, says Peter. “Of the 30
respondents that report total FX
volumes of A$10bn or more, 17
report using TCA.”
Amongst the financial institutions,
requiring greater transparency and
volumes reported by industry super
there is a greater spread of sell side
diversification in relation to their FX
funds,” says Peter. “The reported FX
players executing emerging market
sell-side panel,” says Peter.
volume of industry super funds has
non-deliverable forwards (NDFs) on
REGIONAL e-FX PERSPECTIVE
When it comes to the institutional FX
market, the reported FX volumes in
the PLA study were broadly stable,
increasing by 3% to A$3,115 billion
in 2021. However, says Peter, the
underlying trend was actually down
by 5% due to a less volatile trading
environment than in 2020 when there
was a 22% underlying increase thanks
mainly to a sharp lift in volumes during
March and April when pandemicinduced
lockdowns were imposed
grown substantially over the last five
years. It has more than tripled, and is
likely to continue to grow at above
trend for the foreseeable future. This
is due to increasing insourcing and
growth in funds under management.”
Unlike the corporate market, there
has been little impact from Covid on
the proportion of FX volume executed
through institutional e-FX platforms.
However, this is most likely because
there is already a high proportion of
volume on these platforms. In 2021,
platforms, says Peter. It is no longer
just the domestic banks and HSBC but
also the likes of Citi, BNP Paribas and
JP Morgan. There are also more buyside
firms doing the same.
Expanding the breadth of products
that the buy-side are willing to use
through platforms will be key to
growing the eFX market in Australia,
says Peter, referencing NDFs, options
and emerging market currency pairs.
COMMODITY PRICE RISES
worldwide.
the percentage was 89% and the level
The rise in commodity prices over the
has been consistently around 85-90%
last couple of years has certainly had
“A big influence on current and
for the last five years, says Peter.
a large influence on currency flows,
future trading activity is the increasing
Algorithmic trading continues to grow
says Jonathan Woodward, head of
FX, Asia Pacific, Capital Markets
at London Stock Exchange Group.
“However, the superfunds continue to
grow their assets under management
annually through contributions and
asset growth which means that they
must expand their international
investments.”
The Covid-19 crisis has tested the
resilience of regional eFX providers
and their trading services which have
ultimately stood up to this challenge.
“There were initial challenges with
getting traders set up at home but
everyone adapted quickly to working
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e-FX on the up down under
Australia and what factors are
at play here? “Algos have been
a growing segment of the flow
for many years and will continue
to do so as more products, such
as NDFs, are introduced,” says
Woodward. “The take up of FX
options in Australia has been behind
many other developed markets but
momentum is starting to build.”
The latest fintech developments
in Australia have had a relatively
limited influence on the adoption of
eFX so far, says Woodward. “To date
blockchain has not had any impact
on FX globally, apart from diverting
from home. The interbank voice
so that they are more efficient
some substantial retail investments
brokers probably suffered due to the
internally and the last two years has
into digital assets,” he says. “There
REGIONAL e-FX PERSPECTIVE
lack of sophisticated home telephony
systems and more flow was directed
to the e-channels,” says Woodward.
In order to cater for the growing
appetite for eFX, leading Australian
FX providers been broadening their
portfolio of FX products and services
and launching more flexible and
powerful electronic trading platforms,
real-time pricing solutions, currency
research services and pre and post
trade FX toolsets.
increased the importance of the eFX
functions,” says Woodward. “These
improvements will flow through to
the clients with improved liquidity. The
next interesting regulatory change will
be the Average Aggregate Notional
Amount reduces from US $50 billion
to US $8 billion and institutions will
have to decide whether to clear
trades, pay the increased margin or
reduce their exposure.”
So why has demand for FX algo
are a number of initiatives looking
to launch in the next couple of years
that may have an impact especially
in the corporate space.”
Future growth of the eFX market
across Australia will deliver further
advantages for buy-side firms
and investors over the next few
years, says Woodward. “With the
investment community continually
looking to expand their international
investments the Australia e-FX
“Certainly the Australian banks have
trading and electronic FX option
market will see strong growth in the
continued to improve their systems
trading continued to grow across
future as the banks seek to work
more efficiently and deliver more
product and services electronically.
Competition for business will be
fierce and that will continue to make
the environment extremely efficient
and innovative,” he says.
REGULATORY DEVELOPMENTS
Australia has taken a leading role in
the development of the FX Global
Code, not least because Guy Debelle,
the deputy governor of the Reserve
Bank of Australia, has been chair of the
Global Foreign Exchange Committee
(GFXC) for the last two years.
The code was launched in May
2017 as a direct response to the
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e-FX on the up down under
REGIONAL e-FX PERSPECTIVE
“The Australia e-FX market will see strong growth in the
future as the banks seek to work more efficiently and deliver
more product and services electronically.”
Jonathan Woodward
lack of trust in the FX industry that
had resulted in numerous instances
of misconduct and a number of
multi-billion dollar fines. It has
since been adopted by the major
capital markets as their primary
reference for oversight of the FX
market, including the UK, China and
Australia.
An update was issued in July 2021
in line with the committee’s rule
that the code would be reviewed
Guy Debelle
and amended every three years in
order to keep pace with the ongoing
evolution of the FX market. The first
review was launched two years ago.
According to Debelle, the strong
guidance from the market was that
any changes should be contained to
a few specific areas.
“The GFXC identified a few
key areas requiring review to
ensure that the Code continues
to provide appropriate guidance
and contributes to an effectively
functioning market, and remains
in step with the evolution of the
market,” said Debelle in a speech
given at the TradeTech conference
in September 2021. “The GFXC
also saw the opportunity to provide
greater consistency and usability
in disclosures. In total, 11 of the
55 principles have been amended,
said Debelle. “The GFXC has
also developed disclosure cover
sheets and templates for algo
due diligence and TCA to assist
market participants in meeting the
Code’s principles for disclosure and
transparency. Additionally, the GFXC
has published guidance papers on
the practices of pre-hedging and last
look to support market participants
in applying the Code’s principles in
these areas.”
One area that reflects the
development of the market is the
role played by anonymous trading.
The Code has been amended
to encourage greater disclosure
“The FX Global Code has been updated to remain current
with the ongoing evolution of the FX market. It will continue
to serve its important role of setting the standard for good
practice.”
by those operating anonymous
platforms, including of their policies
for managing the unique identifiers
of their users. Anonymous trading
platforms are also encouraged to
make available the code signatory
status of their users.
So how have participants reacted to
the updated rules? “Almost 1,100
entities globally have signalled
their adherence to the Code’s
principles by signing a Statement of
Commitment,” said Debelle. “With
the publication of the updated
Code, the GFXC is encouraging
market participants to consider
renewing their Statements of
Commitment, having regard to the
nature and relevance of the updates
to their FX market activities,” he
states.
“The GFXC acknowledges that
the changes to the Code will
affect certain parts of the market
more than others. For those most
affected by the changes, we would
anticipate a period of up to 12
months for practices to be brought
into alignment with the updated
principles. We would expect that
the disclosure cover sheets would
be posted alongside the Statement
of Commitments on a similar
timeframe, if not sooner.
The FX Global Code has been
updated to remain current with the
ongoing evolution of the FX market.
It will continue to serve its important
role of setting the standard for good
practice. But to do so, it requires
that you as market participants
continue to reflect the principles of
the Code in [their] activities in the
FX market. In the end, we all have a
strong common purpose in ensuring
that the FX market continues
to operate effectively and with
integrity,” says Debelle.
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Deciding to ‘Build’ or ‘Buy’
Cloud Infrastructure in the
Capital Markets Sector
Technology is moving as rapidly as
Meanwhile in the UK the Governor of
technical solutions that support and
ever, as much in the financial sector as
the Bank of England Andrew Bailey
address the core needs of Capital
anywhere else. Providers promise huge
is enthusiastically promoting ‘buying’
Market clients. “We know very well
advantages of expansion and agility,
rather than ‘building’, highlighting
the pain that financial businesses have
with digitalisation and migration
banks’ lack of IT talent, time and
gone through in attempting their own
to the cloud being vaunted as the
infrastructure expertise.
infrastructure builds,” he says.
ultimate keys to growth and efficiency.
FINTECH & CONNECTIVITY
Hyper-scale cloud infrastructure
providers such as Amazon and Google
are developing financial offerings that
catapult the role of cloud far beyond
plug-and-play Software as a Service,
or massive market data processing and
storage.
The global reach and capacity of the
big tech houses provides undoubted
appeal to organisations that wish to
Nevertheless there’s a strange tension
in the financial sector as firms still
puzzle over the question of ‘Building
vs Buying’. Their necessary risk-averse
nature persists – and rightly so. The
increasing amount of regulation
surrounding the financial sector means
that all actors in the space need to
tread very carefully. Could there
still be a strong temptation towards
proprietary development in such a
security sensitive and highly regulated
“So many banks and brokers have
spent millions on platforms that never
got off the ground.”
The end-to-end process of
implementing a proprietary
environment, whether on-prem or
cloud-enabled, is full of pitfalls and
challenges. As McArthur outlines:
“The costs and risks involved are
prohibitive. The time-to-money can
be anything from 18 months to 3
enter new trading venues around the
industry?
years, depending on knowledge,
world, and there has been a flurry
of activity as the tech giants recruit
THE PAIN OF ‘BUILD’…
resource capacity, and location
accessibility. It’s not just the CAPEX of
financial market-savvy executives to
On-prem infrastructure comprising
the infrastructure, but the on-going
help with their positioning.
locally managed data centres would
hosting and connectivity costs. Built
historically be the solution of choice
connectivity is expensive, time-
for organisations needing a high
consuming and demands a lot of
level of regulatory compliance and
technical know-how which is difficult
security. This would lead to proprietary
to source in-house. A lot goes into
infrastructure builds, requiring huge
procuring, configuring, maintaining
investment in real estate, hardware,
and monitoring the hardware
connectivity, power, DevOps,
and network infrastructure – and
monitoring, maintenance, and support
it certainly isn’t core business for
– as well as expert personnel.
financial organisations.”
Gordon McArthur, CEO of Beeks
… THE RELIEF OF ‘BUY’
Group, the leading specialist cloud
Outsourcing system and infrastructure
infrastructure provider in the Capital
builds has been a prominent option to
Gordon McArthur
Markets sector, has dedicated the
last decade of his career to creating
relieve the pressure on IT departments
in the financial sector.
54 JANUARY 2022 e-FOREX

FINTECH & CONNECTIVITY
THERE’S A STRANGE
TENSION IN THE
FINANCIAL SECTOR AS
FIRMS STILL PUZZLE
OVER THE QUESTION
OF “BUILDING VS
BUYING”
Financial businesses cannot afford
to stand still. Buying in DevOps,
even while they continue to run
their own data centres, means
organisations can release some of
their development responsibility
while keeping their networks,
operating systems, applications
and data tightly under their own
control.
But for every bank that has dug into
its own proprietary environment, there
are a growing number of financial
institutions that are outsourcing their
infrastructure to third party cloud
hosting.
In the US the Financial Industry
Regulatory Authority has moved all
its technology into the cloud, while
banks are saving hundreds of millions
of dollars a year by closing their own
data centres and renting co-located
space, capability and capacity.
The trend to buy in more than DevOps
is on the rise. Outsourced Managed
Service Provision is increasingly an
option in financial circles, as it is in
other sectors of enterprise. However,
from his conversations with banks and
larger financial institutions, McArthur
is aware of the biggest sticking point
to financial firms going all-in with
outsourcing. He says: “While big
institutions love the flexibility and
agility of cloud, they still bump their
head on the issue of internal control.”
PUBLIC CLOUD CHALLENGES
While the reach, versatility and
seemingly bottomless resource of
public cloud is an attractive option,
there are several risks and limitations
that Capital Markets firms need to be
aware of:
Latency
“Public cloud infrastructure cannot
provide ultra-low latency,” McArthur
asserts. “Capital Markets demand
micro and nanosecond timings
and data multi-casting as standard
essentials, but these are still lacking in
the public cloud.”
Control
Regarding control and security, the
twin pillars of regulatory nirvana
for the financial sector, McArthur
says: “One of the major challenges
of the public cloud environment is
that it is fundamentally a massive,
shared network where financial
institutions have no control over
security, data access and data
sovereignty.These may not be so
significant in the generic cloud,
but they are show-stoppers in the
financial sector. Banks and trading
firms are very nervous about
having their environment wholly
controlled and managed by their
public cloud provider rather than the
organisation’s own protocols.”
JANUARY 2022 e-FOREX 55

Deciding to ‘Build’ or ‘Buy’ Cloud Infrastructure in the Capital Markets Sector
FINTECH & CONNECTIVITY
Analytics
Furthermore from the point of view
of performance analytics, McArthur
couldn’t be any clearer: “It takes years
to develop the breadth and depth of
trade analytics that Capital Markets
businesses require. “Analytics like
these are very expensive to buy in on
their own and you can’t really build
them yourself. There are very few
providers in the world who offer the
sophisticated performance analytics
needed. And you can’t get them from
the public cloud.”
Data Location Certainty
Closely related to the firms’ need for
security and regulatory control is the
certainty of where their data is being
held. It is not always possible in the
public cloud to ‘point to’ the physical
location where data resides. In
addition, should data cross borders for
reasons of cloud service performance
optimization this could introduce
regulatory breaches and liabilities to
data owners.
Beeks’ Group’s Chief Sales Officer
Alan Samuel knows how important
data location certainty is to Capital
Markets firms when selecting cloud
infrastructure provision. While the
flexible optimisation of generic cloud
is attractive, it may not deliver the
certainty needed to comply with
regulations.
“Increases in regulation have led
to a huge burden on financial
companies to keep a lot of data –
up to 7 years of it in fact,” Samuel
says.
“Some of the data is very static, but
a lot of it will be dynamic and the
client will want to access it and this
will only increase as AI and Machine
Learning become prevalent.
Therefore having certainty about
where the data resides and having
ease of access to it is of critical
importance to them.”
CONCLUSION
There are clearly many things to
consider when deciding whether
to build or buy – not least the
technical capability of different cloud
infrastructure platforms, and how
‘Capital-Market-friendly’ they are. It
appears that the question of building
vs buying is at best over-simplified, and
at worst anachronistic. In the words of
Andrew Bailey: “Why would you build
it if you can buy it?” Maybe the more
pertinent question for Capital Markets
to ask is: “Since Building is costly and
risky, who do we Buy from?”
BEEKS GROUP’S CONTRIBUTION TO CAPITAL MARKETS
BUSINESSES
Beeks is experienced in matching the appropriate cloud service to its
capital markets clients in financial hubs around the globe.Offering
comprehensive Infrastructure as a Service private cloud access, 24/7
support and monitoring, along with flexible payment plans to readily scale
business up or down, Beeks helps customers focus with confidence on
their core competencies. Beeks latest offering, Proximity Cloud, replaces
all shared infrastructure with a dedicated, client-owned environment that
can be deployed wherever the organisation wishes.“Proximity Cloud goes
one step further than even the standard private cloud implementations,”
comments McArthur.
“It enables data to sit within a customer’s own physically held location,
so we can absolutely point to where it is under the customer’s specific
physical and logical security protocols.” Reflecting on Beeks Group’s
contribution to Capital Markets businesses since 2011 McArthur says:
“We’ve spent the last ten years optimising low latency environments. We
do it quickly, more cheaply than building or outsourcing development,
and we give customers greater flexibility.
Alan Samuel
Everything we do is around supporting one sector of industry that is
Capital Markets, rather than trying to be all things to all people as the
public cloud tries to be. Our customers can pick from 250 venues around
the world and achieve connectivity today. They benefit from ultra-low
latency networks, optimised compute and performance analytics all
pre-integrated, fully supported 24/7, and ready to go from day one.”
Meanwhile Samuel adds: “We act like a utility. There’s no need for our
clients to spend time and money on building facilities that we provide as
standard. Instead of a multi-year commitment we also offer a month to
month, pay-as-you-go subscription model, without compromising any
of the security and performance guarantees that are expected in the
financial space. This releases our clients’ highly paid, expert staff to add
value to their company at the execution level.”
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The end of Excel?
By Stephan von Masenbach, Chief Revenue Officer at DIGITEC
Despite the operational risks of using spreadsheets in FX trading, many banks still rely on Excel in
their workflows.
The strength of Excel is its flexibility,
nature make this an enterprise-wide
but this can also be its downfall,
challenge.
especially when used by financial
firms trading and managing billions of
FX WORKFLOW AUTOMATION
dollars of risk.
For trading businesses, spreadsheets
may be viable for small numbers of
Excel spreadsheets are decentralised, with
transactions or in markets with a
EXPERT OPINION
Stephan Von Masenbach
AN ESSENTIAL TOOL
all the logic, risk and management often
dependent on the person that created
them, and this effect is compounded
by the increasing complexity of pricing
models. If the trader who created a
specific pricing spreadsheet leaves the
firm what happens? Do firms continue
to use a spreadsheet which is not fully
understood, or do they create a new
reduced need for automatic pricing.
But as trade volumes increase and FX
markets become more automated,
spreadsheets are no longer a viable
solution and may become more
of a hindrance, with calculations
taking longer in the face of bigger
transaction amounts and growing
transaction data.
Excel’s ease of use, combined with the
spreadsheet, which takes time and
numerous combinations of analytical
resources?
As FX workflows become more
computations has resulted in an
automated throughout the trade
almost unlimited capacity to conduct
Excel allows firms to perform complex
lifecycle, more data than ever before
quantitative analysis. Over the past 30
calculations across connected
is being captured, analysed and acted
years traders have adopted Excel as the
spreadsheets, but with figures being
upon. Analysing large datasets to
go-to analytical tool in every area of FX,
regularly added (often manually)
gain market insight in search of better
whether it is to calculate prices, create
and formulas edited, there are
trading results means that analytical
a complex financial model or a VAR
concerns about the integrity of data
systems must be capable of managing
calculation. For many users of Excel, its
and reports. This is compounded
vast amounts of data.
flexibility and convenience has enabled
by Excel connecting to multiple
them to develop customised reports
spreadsheets, some of which may be
When we talk to traders about
quickly and without needing to consult
changed without the knowledge of
pricing FX Swaps, many of DIGITEC’s
with IT departments.
downstream users.
clients understand that the market
THE PROBLEM WITH EXCEL
The lack of internal usage policies and
is becoming more electronic, where
update frequency of price data will
Fundamentally, although users expect
change control mechanisms often
ultimately evolve to the point of using
Excel to act like a database, it simply
means that Excel’s use for critical
tick data. Systems need to be robust
cannot manage the large datasets that
business processes goes unmonitored.
to manage this volume of data. In
today’s electronically traded markets
Excel often bypasses IT departments,
addition, new pricing models for FX
require.
but its extensive use and its embedded
Swaps need to be developed which
58 JANUARY 2022 e-FOREX

EXPERT OPINION
have less reliance on broker feeds,
meaning that pricing tools require
more computing power and can no
longer rely on Excel.
Image by shutterstock
THE NEED TO REPLACE EXCEL
As financial firms face increased
regulatory oversight, Compliance
teams are demanding that Excel is
replaced by applications which support
data controls, specified workflows and
approvals, and change management
processes to ensure complete visibility
and transparency across all functions,
fully supported by an audit trail.
Excel has insufficient governance and
control, with difficult to understand
workflows across different teams,
systems, and locations. There is a
lack of transparency and auditability,
and Excel limits the availability of
timely information and makes realtime
analysis more difficult, hence
impacting decision-making.
Spreadsheets result in human keying
error and can heighten security
concerns and hide control issues.
Security features are lacking, meaning
that even if spreadsheets are password
protected they are relatively easy for
hackers to access.
REMEMBER THE “LONDON
WHALE”?
The use of Excel in Financial Markets
has led to some high-profile losses.
Perhaps the most famous was J.P.
Morgan’s “London Whale”, the trader
who lost $6.2 billion in 2012 in CDS
positions.
After the event, J.P. Morgan’s
internal investigation identified
issues related to a VaR model, which
used several Excel spreadsheets.
These were updated by copying and
pasting data from one spreadsheet
to another, introducing the potential
for keying error. The most concerning
finding, however, was that the VaR
spreadsheets contained a significant
error, where instead of dividing by
There are now alternatives to using Excel in FX
the average difference in prices, the Excel with DIGITEC’s D3, a centralised
model instead used the sum of the application for all pricing, which can
differences. This reduced volatility by be accessed by users who can work
50% and resulted in a significantly in parallel, across desks or in different
lowered VaR.Other examples include timezones. This robust solution
Goldman Sachs using a spreadsheet enables simple and fast auditing
that erroneously overstated Tibco’s and compliance, and supports the
share count in 2014, which led to a downstream distribution of system
miscalculation of Tibco’s equity value, outputs and market data.
and a $100 million loss.
For firms requiring a more bespoke
Also, in 2002 John Rusnak, a trader at solution, there is a need for No Code
Allfirst Bank, manipulated spreadsheet applications, like D3 Curves, a new
models used by the bank’s internal module and extension of the centralised
control staff, which ultimately cost the D3 system. With D3 Curves, clients are
bank $700 million in losses.
able to build their own more complex
models and curves that can lie behind
THE RIGHT TIME FOR CHANGE the D3 pricing engine, without needing
The problem for FX departments is a Quant or having the ability to code.
that Excel is deeply ingrained in their
infrastructure (and in the infrastructure In the past there was the argument
of the whole FX industry), and
that using centralised applications
any attempt to move away from and No Code modules were too
spreadsheets is likely to cause major expensive for anything other than core
upheaval.
products, but the recent adoption
of applications deployed on the
However, as FX workflows become Cloud makes these robust systems
increasingly automated, reducing more affordable and accessible for
manual errors and increasing efficiency, many more firms – meaning that at
there is no room for applications like last there is a credible (and superior)
Excel. We regularly see clients replace alternative to using Excel in FX.
JANUARY 2022 e-FOREX 59

Harnessing the power of
technology to help brokers
reduce their FX market
data costs
By Evgeny Sorokin, SVP of Software Engineering at Devexperts
A similar trend is observable in the
the amount of data that brokerages
industry that we’ve been following
have to contend with. More
most closely at Devexperts; that
instruments, more traders and more
of online trading. Where the
transactions have led to spiralling
BROKERAGE OPERATIONS
Evgeny Sorokin
THE DATA DELUGE
If there’s a trend to be observed across
cost of procuring, managing and
storing market data was once so
negligible that it hardly factored
into the business strategies of most
brokerages, today there’s an entire
cottage industry growing up around
helping brokers to optimise this most
vital aspect of their businesses.
The online FX industry has gone
through a number of notable shifts in
recent years. You may have noticed
many established brands trying to
data costs. This is where the business
of data vendors lies, but where
brokerage businesses are dependent
on vendors. As an example, dxFeed,
a Devexperts market data subsidiary,
currently stores petabytes of market
data. Through the course of our work
in the industry, we’ve identified several
key inefficiencies in the management
of this data and we’d like to share
some of our insights at this time.
PERFORM REGULAR AUDITS
all industries and walks of life, it’s that
shake off the “FX” part of their names
Today’s flood of market data is
data is eating—or more accurately
in favour of “Markets” in recent
forcing many to devote at least some
flooding—the world. In 2020 the
years. The first forays they made into
operational bandwidth to market data
amount of information in the digital
expanding beyond the usual major,
management. It may seem counter-
realm reached 59ZB and the University
minor and exotic currency pairs was
intuitive to suggest that a broker
of Portsmouth predicts it would reach
the addition of precious metals and
wishing to cut costs should devote
a mind-boggling 175ZB by 2025. To
energy to their respective offerings
extra resources to this, but you can’t
give you an understanding how huge
well over a decade ago. This was
optimise something that’s costing you
the number is, one zettabyte converted
followed by stocks, indices, futures,
money without taking the time to
to bytes is 1 with 21 nulls. This amount
bonds and most recently crypto assets
understand why and how. Particularly
of bytes, every of them storing a piece
and ETFs. Each new addition of an
when it comes to an area as business
of information, has almost risen to
asset class brings with it bundles of
critical as market data. Market data
the number of stars in the observable
symbols that have to be integrated,
management should be part of every
universe (200 billion trillion stars). The
transmitted and stored.
brokerage’s overall strategy. This
growth in information production
involves performing regular usage
appears unstoppable with the estimated
This shift to multi-asset brokerage,
audits in order to identify which
compound growth rate is around 61%.
the concomitant popularisation and
vendors are critical to the business,
Now, what percentage of that data can
growth of the industry itself, as well as
which have raised their prices and
be accounted for by cat videos alone,
developments in algorithmic and high-
what alternatives there are in the
we’re not completely sure.
frequency trading, have all multiplied
market. Is there an overlap between
60 JANUARY 2022 e-FOREX

BROKERAGE OPERATIONS
vendors? If so it’s important to identify
redundancies. Is your business paying
for packages that you don’t need
and aren’t using? Are long term
agreements really saving you money or
locking you down in an ever changing
market where vendor flexibility could
be a competitive advantage?
Image by Shutterstock
OPTIMISE WHAT YOU HAVE
Once you’ve taken stock of precisely
what data you’re receiving from which
vendors and made cuts to account
for redundancies and unnecessary
streams, its time work on making the
most of the data that you’re actually
paying for. There are many brokers
who still stream unrefined market
data at extra cost to their businesses.
Employing compression algorithms to
compare feeds and filter price spikes
that vary within a given percentage,
will almost certainly add value to the
data that you’re already paying for.
It will also improve the experience of
trading with your firm as spikes wreak
havoc on the best laid plans of the
majority of your traders, needlessly
triggering limit and stop-loss
orders without there having been a
fundamental change in trend.
COST OF SERVICE
Your greatest savings are likely to
be made by focusing on the costs
of your subscriptions. This is where
competent third parties can come in
to offer technological solutions that
can radically cut costs. Such providers
are capable of supplying data that
approximates the original real-time
exchange streams. This massively
reduces exchange costs as the method
employs derived data that cannot be
used to reconstitute original tick data.
Market data management should be part of every brokerage’s overall strategy
minimum sets of symbols, some of usually determined by IT budgets but
which may not be of interest to your this need not be the case. A competent
traders. Advanced third parties will third party provider will have options
allow you to take advantage of a that can be tailored to the needs of
pick ‘n’ mix approach, where you can your traders. These include historical
select the symbols that you require price data that can be streamed on
and only pay for those.
demand, as well as detailed market
replay data that’s required by advanced
COST OF STORAGE
clients who wish to backtest and
As retail traders become more
optimise their trading bots.
sophisticated in their understanding
and analysis, having access to accurate COST OF TRANSMISSION
price histories becomes all the more Retail brokerages are usually
important. How far price histories go is hamstrung in this regard as the
Image by Shutterstock
Additionally, opting for a third party
provider will often allow for much
more control over the symbol data
that you pay for. The packages of
most of the existing big players can be
inflexible, requiring you to purchase
Your greatest savings are likely to be made by focusing on the costs of your subscriptions
JANUARY 2022 e-FOREX 61

Harnessing the power of technology to help brokers reduce their FX market data costs
Image by Shutterstock
2, 3, -2, 1. By only transmitting the
differences, delta-encoding reduces
the number of bits required to send
and store historical market data.
BROKERAGE OPERATIONS
Each brokerage business has its own unique set of pressures and inefficiencies to be identified and addressed
way they distribute data is not in world market data with duplicates
their control when using a thirdparty
platform. There are a host of removed. This can free up much
and redundant quotes having been
technological hacks can be employed needed bandwidth and reduce
to optimise transmission costs and latency, especially during times of high
existing platform providers resort volatility.
to them with varying degrees of
effectiveness.
Delta-encoding is another method
by which streams of data can be
Quote conflation and removal
transmitted and saved in the form
algorithms sift through the tick-by-tick of differences (or deltas) between
data, smoothing it by not transmitting sequential values, rather than sending
duplicate ticks and removing quotes the entire stream of values as is,
that are no longer valid, in addition complete with their redundancies.
taking bandwidth into account. In Delta-encoding reduces the variance
other words, if the incoming stream of the values to be transmitted and
reads as follows: “aabbbabc,” after stored. So, instead of a stream of price
quote conflation it will look more like: ticks that appear as follows: “211,
“ababc.” The data forwarded on to 213, 216, 214, 215”, after deltaencoding
they would look like this: clients appears identical to the real
1,
Image by Shutterstock
Where market data are concerned there’s almost always money to be saved
For incumbents in the space,
optimisations in this area are only going
to be relevant if you’re in the process
of rethinking your existing platform
strategy, or if you have already
partnered with a provider who places
a premium of customisability and is
willing to work with you to achieve
the efficiencies that your business
requires. Newcomers to the space have
a much broader set of options available
to them than the brokers of even a
decade ago. They will have to carefully
balance the cost and time requirements
of developing a proprietary platform
from scratch, or to partner with a third
party that has the experience and
willingness to tailor its existing product
line to their needs.
FINAL THOUGHTS
These are just a handful of ideas and
optimisations that we’ve been helping
brokerages with, both at Devexperts
and at dxFeed. Of course, each
brokerage business has its own unique
set of pressures and inefficiencies to
be identified and addressed. However,
one thing that we’ve found to be
true almost completely across the
board, is that where market data are
concerned, there’s almost always the
scope for improvements to be made,
efficiencies to be gained and money
to be saved. We’re committed to
continuing this work as the industry
evolves and the volume of market data
continue to grow. We’d be delighted
to dig into the weeds with you and
look at the specifics of how your
business is managing its own market
data needs. It’s what we do here. So
please feel free to contact us for a
consultation and market data audit,
you may be surprised with how many
potential savings there are lurking
under all that data.
62 JANUARY 2022 e-FOREX

JANUARY 2022 e-FOREX 63

Why brokers prefer
Metatrader 5 Gateways
over bridges
Liquidity bridges have come a long way since their inception, yet brokers still prefer MetaTrader
5 gateways. In this article, a version of which was orginally published by Finance Feeds, Andrey
Kamyshanov, Co-founder and Managing Partner at Brokeree explains why.
BROKERAGE OPERATIONS
for connecting to a liquidity provider
since they are traditionally perceived
as manageable, reliable, and simple
to use. In fact, gateways convincingly
compete with bridges when it comes
to market connectivity.
TRANSPARENCY
Technically speaking, gateways are
mere plugin-like programs installed
on a MetaTrader server. They have a
two-part mechanism. Once the broker
creates a trade, it goes to a gateway
Andrey Kamyshanov
through a routing rule without
processing the data. It directs a trade
Bridges have evolved to modern to the Liquidity Provider and sends a
multi-component systems from a basic response from the counterparty back
connector between MetaTrader 4 to the platform. Hence, a gateway
servers and liquidity providers. They involves two elements MetaTrader 5
are just a few features shy of being and a liquidity provider, which create
an actual trading platform for the a simple and reliable communication
fintech market. Despite that, brokers process. This operational transparency
still prefer MetaTrader 5 gateways plays to its advantage. The technology
Trade execution at a liquidity provider via MT5 Gateway
not only restricts technical risks but
also helps users quickly trace errors
and the root cause of a problem
during emergencies.
Similarly, symbol configuration for
gateways, which is carried out via
the MetaTrader interface, is also
transparent. It requires a broker to
map symbols from a liquidity provider
with an existing list of instruments on
the trading platform. On the other
hand, liquidity aggregation is handled
by MetaTrader 5 itself. For example,
brokers can connect multiple quote
sources to ECN symbols for allowing
the platform to execute trades at the
best price in the market. Brokers can
also use ECN symbols in another way.
They can use one gateway to display
real-time quotes and another LP to
execute a trade.
VERSATILITY
MT5 gateways are clear winners
over bridges in their ability to place
pending orders directly on the market.
This feature is critical while trading
stocks, as definite real-time quotes for
the stock market can be costly. That
is why most brokers like to stream
indicative prices and interact with
the LP-only during trade execution.
In contrast, bridges can delay trade
execution since they are capable of
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JANUARY 2022 e-FOREX 65

Why brokers prefer Metatrader 5 Gateways over bridges
• If a company operates with various
trading platforms, such as MT4 and
MT5
• A request to process some risks
internally while hedging trades
partially to an external counterparty
BROKERAGE OPERATIONS
Trade execution at a liquidity provider via MetaTrader Bridge
processing trade requests only. As on the platform, which is capable
quotes on the platform are different of handling crucial errors like a live
from the actual market prices, by the trading server crash. In such cases,
time the price equals the quote on the MetaTrader 5 platform promptly
the trading platform, liquidity for that switches to a backup instance and
order on the market might not be updates all corresponding IPs for
possible. In other words, unlike MT5 the history server, which operates
gateways, bridges don’t respond to a gateways. It allows brokers to focus
pending order until executed on the on fixing the root cause instead
trading platform.
of worrying about missing trade
requests or quote freezes. Similarly,
PERFORMANCE
with the MetaTrader cluster, there
Gateways and bridges perform is no need to reconfigure an old
differently during emergencies. gateway or implement an additional
While bridge systems do have one since MetaTrader can connect
in-build risk management tools, existing gateways with new live
they do not guarantee a prompt trading servers.
response during infrastructure
breakdowns and often need
Only in some exceptional situations
manual reconfiguration. In contrast, will a broker need a more
MetaTrader 5 gateways have
comprehensive solution than a
internal risk mitigation scenarios gateway. These include:
Image by Shutterstock
• A broker wishes to get advanced
exposure along with execution
analytics.
In all the above scenarios, a three-part
model “trading platform-bridgeliquidity
provider” can replace two-part
liquidity. It will then allow the bridge to
operate as a mediator that links several
platforms, generates detailed reports,
and performs hybrid execution.
FINAL THOUGHTS
In essence, both bridges and gateways
help brokers connect a platform with
a liquidity provider. However, brokers
often have additional requirements
unique to their business models. Do
brokers offer clients stock trading
option? Do they work with various
liquidity providers? How do they
process trades: on a-book, b-book, or
through hybrid execution? How many
MetaTrader servers do they have? Do
they need detailed trade analytics?
All these unique business conditions
precede the topic of this article
— “why do some brokers prefer
gateways over bridges?”
Gateways and bridges perform differently during emergencies
To conclude, the preference of any
technology always depends on the
business needs. The goal of any trading
technology is to meet the broker’s
idea and make mundane processes
easier and more comfortable. That
said, even the most viable idea cannot
be perfectly executed without the
assistance of high-quality software.
Therefore, it is critical to assess the
business requirements and find a
suitable technology provider that is not
just reliable but can turn that idea into
a reality.
66 JANUARY 2022 e-FOREX

Overview
Dashboard
Clients
MAM/ PAMM Bonus Automation IB/ Affiliate
Dynamic Margin CRM
OnBoarding
Trader
Partners
MAM
Back Office
Bonus
Dynamic Margin
Reports
Analytics
Logs
Notes
Tasks
10
8
6
4
2
1
0
8
6
4
2
1
Net Asset Value
Net Asset
2 689 5
Capital Allocation %
25 189 32 6
Jan 2021 Feb 2021
State State State
Gain Since Inception
Gain Since Inception
8
Net Asset
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
4
2
1
28 321 16
Net Asset Value
Current
22 177 08
Gain 37%
Since inception
6 144 08
Loss 37%
Since inception
3.60%
ROI
Since inception
Portal Settings
JANUARY 2022 e-FOREX 67

Connexus Alpha
®
Low latency trading
Every nanosecond counts when choosing the
right solution for your trading floor
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68 JANUARY 2022 e-FOREX