ParFX Grows Volumes In Spot Market
Dan Marcus, chief executive of ParFX, said the wholesale spot foreign exchange electronic trading platform is increasing volumes on a daily basis thanks to a model which includes randomised delays to orders. Marcus told Markets Media that ParFX volumes have been going up every day.
“Foreign exchange markets have been non-volatile in general over the last year or so and although overall platform volumes were lower in February than January, our volumes grew,” added Marcus. “All the top 20 banks are on the platform and we are in the process of onboarding a lot of additional clients – both banks and non-banks.”
The foreign exchange platform was launched in 2013 with 14 banks, including Citi and JP Morgan, amongst its founding members. The banks had asked Tradition, the inter dealer broker, to design a platform to address some issues that have damaged the foreign exchange market such as the lack of transparency and fairness, the ability to gain an advantage via low-latency technology and market data, and a lack of firm liquidity.
ParFX introduced a matching mechanism that applies a randomised pause of between 20 and 80 milliseconds to each order submission, amendment and cancellation, which eliminates the advantage of trading strategies that depend on speed.
Roger Rutherford, chief operating officer of ParFX told Markets Media: “The randomiser in ParFX has shaken up the fundamentals of first-in, first-out as the randomised delay to orders affects latency-based trading strategies which, as we understand it, are a cause for concern in the spot FX market.”
One practice in the foreign exchange market is the “last look” which allows markets to reject trades they do not want to complete on their platforms. This is not allowed on ParFX, giving asset managers more certainty in execution.
ParFX was built using technology from Tradition’s Trad-X platform for OTC derivatives that offers executable, rather than indicative, prices from a central limit order book streamed by a consortium of banks.
BlackRock said in its response to the Bank of England’s Fair and Effective Markets Review in January that the use of last look is problematic. The fund manager said: “Just as in the equity market, where centralised venues represent firm interest rather than mere indications of interest, our preference in the FX market would be to a view on the liquidity in which we can deal, even if this comes at a higher cost compared to the ‘phantom liquidity’, which can be removed at short notice. Moving away from indications of interest to streaming firm prices would be fully consistent, we believe, with outcomes that are both fairer and more effective.”
Marcus said: “This is very much in line with the ParFX philosophy. Our model is designed to present firm sustainable liquidity in the most cost effective efficient manner possible.”
In addition to randomised matching, Rutherford said ParFX differs from other spot foreign exchange platforms in its transparency, fee structure and market data.
“Our pure principles are based upon a post-trade environment that is fully transparent and the lowest flat fee brokerage schedule in the market, without any special deals,” added Rutherford. “It’s also important to stress that we do not sell any ancillary premium market data. Our market data is provided for trading purposes; it is the same for everyone and delivered to all participants at the same time.”
Rutherford said that in an effort to keep costs to a minimum, ParFX also provides ease of connectivity by having just one data centre with one single connection. He added: “We will be focussing on client acquisition from both the sellside and buy-side and extracting value from our matching environment. We have started a partnership program with independent software vendors who service the middle-tier banks.”
Marcus said the founding banks had asked Tradition to provide a solution for spot FX but the ParFX model is transferable. “The platform can easily be adapted for other products and we are ready, willing and able to do that where appropriate and where desired by the market,” he added.
On 28 August last year London-based GSA Capital and New-York-based Virtu Financial completed the first trades via ParFX Prime, ParFX’s new prime brokerage service for the buy-side. The service lets fund managers trade through their prime broker alongside the banks on the platform.
Alex Gerko, head of FX Trading at GSA Capital, said in a statement at the time: “Since its inception, ParFX has been committed to creating a level playing field amongst participants on its platform; in particular ensuring that trading speed does not equate to an advantage, something we wholeheartedly support.”
On ParFX Prime the executing broker, prime bank and prime client are all required to give up their names post-trade.
Chris Concannon, then president and chief operating officer of Virtu Financial, said in a statement last September: “For us, the crucial differentiator of ParFX Prime is the level of trading transparency it offers to ensure fair, orderly trading conditions. Showing counterparty names post trade is a progressive and logical move to enhancing transparency, genuine liquidity and trading relationships across this market.”
Concannon is now president at equity exchange Bats Global Markets and will take over as chief executive officer at the end of this month.
He helped negotiate an agreement for Bats to acquire Hotspot FX, an institutional spot foreign exchange market, for $365m in cash from KCG Holdings this year and allow the exchange to enter a new asset class.
In January KCG reported that Hotspot had an average $34.3bn per day in notional foreign exchange dollar volume.
Hotspot said its average daily volume in the fourth quarter of last year was $31.7bn, an increase of about 20% from the first half of 2014. The company’s customer base includes more than 220 banks, market makers, hedge funds and institutions.
Concannon told publication Forex Magnates in February: “The costs and the complexity of the infrastructure which constitutes the foreign exchange market today have become a problem. The marketplace has been transformed from an industry that is not used to technology, to a technically complex infrastructure-dependent one. We see an opportunity to offer a very competitive service to a broad group of FX clients.”