e-Forex-May-23

MARKET COMMENTARY
BRINGING BANKS INTO THE
LOOP: IMPROVING LARGE TRADE
EXECUTIONS WITH A PIONEERING
PEER-TO-PEER-TO-BANK MODEL
While the novel developments we
have been talking about in this article
are making a significant impact,
some believe they don’t fully address
concerns that the P2P model fails
to replicate bank risk warehousing
under adverse conditions. It is a
concern LoopFX has taken into
account and claims to have found a
solution.
“Models that only enable Peer-To-
Peer trading are problematic because
you often cut out one of the largest
and most critical parts of the market
– the banks,” says Blair Hawthorne,
CEO of LoopFX. “Banks make up
a large part of the market whilst
providing critical risk warehousing
and uncorrelated flow,” he continues.
“Why would you not want to include
them?”
Hawthorne believes there are
significant issues preventing the
necessary widespread adoption
required for P2P models- a view born
from his experiences in his former
senior trading role.
“From my old trading seat, I
struggled to find a model that
I would be comfortable using.
There are loads of possible
headaches,” he says. “Some of
these include asset managers
having to incur significant resources
to connect, disintermediation of
their longstanding panel of banks,
taking large market risk when
searching for a match, and the
need to accommodate new legal
documentation. It was too much
effort for too little reward. LoopFX’s
new Peer-To-Peer-To-Bank model
addresses all of these challenges
head on.”
Changes to legal documentation and
workflow are often unacceptable to
most asset managers and Hawthorne
says that market participants
continuously demand solutions that
embed seamlessly within existing
workflows. “Models also have to have
a reasonable chance of matching,”
he says, “and this means getting
both asset managers and banks
working together. P2P by its name
disintermediates a critical partner.”
To address these shortcomings,
LoopFX is pioneering the first
dark pool that centralizes bank
axes with P2P trading, enabling
market participants to source larger
block matches. Loop’s Peer-To-
Peer-To-Bank model focuses on
eliminating information leakage
when sourcing large block liquidity.
Powering LoopFx’s platform is the
first continuous, non-discretionary,
midpoint matching engine across
both Buyside and Sellside orders on
Type 2 SOC 2 certified infrastructure.
Bringing banks into the picture has
significant advantages, Hawthorne
says. “Banks have a new avenue for
managing risk safely, leading to a
healthier ecosystem, which should be
reflected in all client pricing – even
those not directly accessing the Loop.
Also, partnering with banks keeps
all market participants in the loop;
nobody gets disintermediated.”
Hawthorne details a few new
opportunities the new model brings
in contrast to current P2P workflow.
“Finding a match for large spot
trades while ensuring no information
leakage is easier in a dark pool,”
he says. “The workflow is also
simpler. LoopFX uses existing trading
platforms and workflows, causing
minimal disruption and enabling
ease of integration and adoption.
Participants receive better execution
at lower cost and impact the market
less.” Participants can search for
liquidity via Loop’s dark pool directly
or search indirectly through the Bank’s
algo that posts an axe to the Loop.
“Peer-to-peer-to-bank solves a real
problem in this way,” Hawthorne
says. “It gives clients more control
and transparency. Banks are included
in the system and can target parts of
the market they usually struggle to
monetize.” Critically, these conditions
lead to higher match rates-something
every stakeholder - from LC to LP to
platforms - wants.
MAY 2023 e-FOREX 21