1. What is ParFX doing and what is the firm’s unique position in the market?
(Dan Marcus): ParFX is the wholesale electronic trading platform for spot FX created in response to the industry’s frustration with the growing prevalence of disruptive trading in electronic spot FX markets.
Participants were fast becoming fed up with the unequal playing field, lack of transparency and an unhealthy emphasis on speed as the main criterion for success rather than intellect, strategy or genuine trading need.
Our founding banks wanted to reintroduce a fair and transparent trading environment to spot FX, so they chose Tradition to make that vision a reality. They developed a set of criteria and ethos they believed to be critical to re-establishing a healthy market, and these principles underpin how ParFX operates today.
ParFX is centred around the concept that a technological or economic advantage should not automatically constitute a trading advantage, and offers high quality liquidity and firm pricing from institutions with a genuine interest to trade. A commitment to transparency and fairness is crucial in order to achieve this.
Our ethos has helped us to create a trading environment where all participants can trade with each other in a fair, effective and transparent environment, and are subject to the same rules regardless of size, technological sophistication or financial clout.
(Roger Rutherford): ParFX addresses many of the key issues that were damaging the efficiency of spot FX trading and offers participants a level playing field where trade execution is guaranteed and disruptive trading is effectively policed.
One of the main reasons participants are attracted to ParFX is because of the features we’ve put in place to prevent disruptive trading, most notably our unique matching mechanism which applies a meaningful randomised pause to all order submissions, amendments and cancellations. This pause is meaningless to those with a genuine need to trade, but meaningful enough to nullify any strategies that are based solely on speed.
2. What are some challenges to maintaining a transparent spot FX trading platform and why have others been so slow to catch up?
(Dan Marcus): Transparency will continue to be a defining theme for ParFX, specifically ensuring it permeates to some of the more opaque corners of the market through reform and technological innovation. With the FX industry under increasing levels of scrutiny it is only right that the market is beginning to recognise the need for greater trading transparency.
But we should not simply wait for regulators to lead the way on this; individual firms in the industry ought to take the initiative, be proactive and ask how they can assist regulators and market participants in this task.
The ParFX founders recognised the need for greater transparency more than five years ago, identifying a clear gap in the market for firms that are globally operational to take the initiative to shape a new trading mentality. They wanted to create a platform which improved transparency and had a positive impact on the global spot FX market. This is what Tradition has delivered.
(Roger Rutherford): Market participants are frustrated with an environment they consider as opaque and discriminatory against them – particularly if they don’t have the same financial resources or technology relative to their peers. Trust has been eroded due to the prevalence of disruptive behaviour, and the market has demanded change. As part of our strategy, we are completely transparent about our pricing and brokerage is the same for all participants. We believe being open about this gives participants a glimpse of an alternative model, as banks and other financial institutions look to cut costs and increase transparency.
Interestingly, the principles underpinning ParFX were conceived back in 2010 and remain particularly relevant to today’s market conditions. There has never been greater necessity for a venue like ours that offers a fair and transparent trading ecology.
3. Do you feel that most market participants or users suffer from a lack of at-cost market data – can you name any shortcomings individuals are presently faced with?
(Dan Marcus): ParFX stands out because of our commitment to providing a completely transparent pricing structure and distributing market data at no extra cost to all participants, regardless of their standing in the market.
Our pricing strategy will continue to remain simple and transparent. Everyone pays a monthly connection fee to interface with our platform. Included in that is your market data, which is exactly the same data for everyone, delivered at the same frequency in parallel, so you can’t buy an additional data package to gain an advantage. This is one of the key tenets of the platform – no ifs, no buts.
We ensure all participants are treated equally and play by the same rules. Everyone receives market data simultaneously, meaning no millisecond advantage for those with the deepest pockets.
(Roger Rutherford): From a business perspective, market data is an expensive burden on institutions and has a material impact on the bottom line. The static nature of those fees means they don’t scale with volumes, which have dropped alarmingly on incumbent platforms in recent years.
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One practical way we have been able to address these issues is by distributing all information in parallel via one connection point in London. This not only means data is distributed simultaneously but succeeds in preventing advantages to be gained purely from location.
We see the move towards lower-cost, flexible and variable market data inevitable, as the current pricing structure is unsustainable. It does not provide value for money, prices out smaller participants, provides an unfair trading advantage to those with the deepest pockets.
4. How has ParFX’s liquidity leveled the playing field for market participants?
The stability and firmness of prices that participants see on ParFX and the ability to execute on these prices is one of the platform’s primary principles. Our pioneering matching technology applies a meaningful randomised pause to all order submissions, amendments and cancellations. This firms our liquidity by creating a genuinely level playing field for all participants regardless of their technological sophistication or financial strength and improves price discovery and execution. This ensures no participant gains an advantage due to advanced technology or execution speed and creates a market of genuine interest, reliable price discovery and firm liquidity
(Roger Rutherford): By deploying a randomised pause, we nullify strategies reliant on extreme latency in order to gain an advantage, while still offering an efficient trading venue where speed or technological sophistication isn’t a critical factor. In effect, we are replacing the concentration on speed with a focus purely on intelligence and strategy, and participants on all sides have welcomed the equality and transparency we have introduced.
In addition, many institutions that have a genuine need to trade FX but which trade relatively small volumes compared to the largest institutions can potentially be discriminated against. They cannot negotiate the same low fees, which puts them at a significant disadvantage.
On ParFX brokerage is USD 2 per million notional for everyone. We offer no volume discounts or special deals. We treat all participants equally and offer them the same opportunities to access the same liquidity. In our view, this offers a fair and effective environment for all participants.
5. Has there been a lot of interest in ParFX Prime? If so, have you noticed any regional consolidation or concentration of clients?
(Dan Marcus): To date, we have several clients trading on ParFX Prime and there is a very healthy pipeline for the coming months from all geographical regions of the FX market. A key attraction is that they no longer have to continually invest in the fastest technology and market data in order to keep pace with their peers, as speed is no longer a factor for success on ParFX. There are many institutions searching for an alternative venue to deploy relative value strategies based on intelligence, rather than speed. The ParFX Prime model caters to this need.
ParFX is a fully open-access platform that supports a diverse range of trading strategies and we never discriminate against anyone who trades and abides by our rules. By disclosing their names, these institutions are proving that they have absolutely nothing whatsoever to hide, while deterring those reliant on disruptive strategies from trading on the platform.
(Roger Rutherford): We designed ParFX Prime in conjunction with a group of the industry’s largest FX trading institutions, and put resources in place to ensure it is relevant to today’s world. ParFX Prime places transparency at its core, and provides an open, elegant trading environment.
Historically, prime clients have always traded in the name of their prime broker and their identity is never revealed. Nor would the prime client know the name of the counterparty on the other side of the trade. This anonymity is one of the underlying factors that led to the rise in nefarious trading, as certain participants utilised their anonymity and engaged in a range of disruptive trading strategies in order to gain a competitive advantage, often driven by latency.
To address this – and to promote the tenet of full transparency – ParFX and its founders changed that construct. In what is a first for a spot FX platform, ParFX Prime requires that the executing broker, prime bank and prime client names are all given up post-trade. All parties to the trade enjoy enriched counterparty information. Not only is the prime client name revealed for the first time, but the prime client also sees with whom they are trading rather than just the name of his prime bank.
Adopting full post-trade transparency, combined with solutions such as randomised order entry, free market data distributed in parallel and uniform brokerage fees for all participants, creates a unique offering for all participants and a robust deterrent to any potential disruptors.
6. What are ParFX’s ambitions or goals for H2 2015?
(Dan Marcus): Since its launch two years ago, ParFX has had a significant impact on the industry. We are continuing to grow and develop at an impressive rate and continue to be very satisfied with participation on the platform. Just as importantly, we have succeeded in introducing a new trading mentality to the FX market, underpinned by transparency, equality and fairness.
(Roger Rutherford): While we are still a relatively young platform we are already beginning to see the benefits of our strategy, which has focused on onboarding additional counterparties that want to trade in our environment, furthering an environment of firm liquidity. The number of bank and non-bank institutions are continuing to grow and our focus for the rest of the year will be to continue our on-boarding programme and to encourage greater participation and diversity of trading strategies.
We believe that an established global distribution network, combined with our commitment to transparency and a level playing field for all participants, sets the foundations for stable growth and attracts genuine liquidity from all sectors of the market.