ParFX Launches New Prime Service – Aims to Harmonise Institutional Spot Foreign Exchange

A new prime brokerage service for buy-side customers claims to level the playing field for all institutional traders by removing

parfx-primeCompagnie Financiere Tradition (CFT), a Swiss inter-dealer broker, has announced the launch of their new wholesale spot FX electronic trading platform – ParFX Prime. The platform has been developed by an array of global banks including Deutsche Bank, Citigroup and JP Morgan Chase, being hailed as “developed for the market, by the market,” according to a ParFX official statement.

The first trades were conducted on August 28th by London-based ‘GSA Capital’ and New York-based ‘Virtu Financial’. ParFX wants to enable buy-side customers to trade through their prime broker on a “post-trade disclosed” basis, meaning counter-party identities are revealed after the trade has been booked.

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Open Sesame

ParFX claims to deliver “full trade transparency” with executing broker, prime bank and prime client required to reveal their identities post-trade. All orders are subject to processing by ParFX’s matching mechanism which adds a “randomized pause” to all submissions, trade order amendments or order cancellations. According to ParFX, this “ensures a level playing field for all participants regardless of technological sophistication or financial strength.”

ParFX has been picking up plaudits and support across the trading arena. The firm was awarded the title of  “Technology Project of the Year in the Dealing/Trading” category by ‘The Banker’ magazine in August 2014. Earlier in July, the firm received FX Week’s e-FX initiative of the year award for its “efficient, transparent and versatile solution to spot FX trading.”

Dan Marcus, Chief Executive Officer (CEO) of ParFX said: “The prime brokerage model is a key avenue for buy-side participants to exchange risk, but has been taken advantage of by disruptive traders due to anonymity and a lack of transparency surrounding it. We have developed this solution as a direct response to this growing concern – one shared by a wide range of buy-side and sell-side participants – and have been overwhelmed by interest in our prime solution to date. Adding, “ParFX supports full post-trade transparency by identifying the executing broker, prime bank and prime client on all trade details. By removing the mask of anonymity we are encouraging responsible trading behavior.”

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Jason Vitale, Head of Prime Brokerage at Deutsche Bank commented: “As a founder of ParFX and one of the largest providers of FX prime brokerage services, Deutsche Bank appreciates the opportunity to assist the buy-side community in building ParFX Prime.”

ParFX is now open to all professional institutions able to settle via CLS and for sourcing FX liquidity in CLS-eligible currency pairs.

Evolution not Revolution

The trading community is trying to evolve into a fairer and more transparent model in a number of industry niches. ParFX is demonstrating that the co-location and latency issues facing HFT traders in equity markets are also encroaching into the FX market. Some traders are taking advantage of the prime brokerage model by using the lack of transparency and latency to gain an advantage.

Although speed is generally not considered to be a great factor for institutional FX traders due to several counterparties being available simultaneously, as opposed to equities where trading is done via a centralized exchange or dark pool where latency is key.

IEX has recently deployed a similar business model to ParFX whereby a pricing mechanism includes a delay to slow down traders with lower latency connections to ensure an advantage cannot be obtained by being located closer to the trading venue, or if the user is implementing highly sophisticated technology not available to most other market participants.

Inferencing from Mr. Marcus’ comments that ParFX wants to encourage “responsible” trading behavior, suggests that ‘irresponsible’ trading behavior continues to pester FX market participants, especially at the institutional level.

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