BATS London FX Matching Engine Goes Live

As global exchanges vie for a slice of the global forex market, BATS Global Markets launches FX matching engine in

After months of hype, leading markets operator, BATS Global Markets, has gone live with its new London FX matching engine, which will operate under newly-acquired subsidiary, HotSpot FX.BATS logo

The London matching engines will complement HotSpot’s US-based FX matching engine, and cater to the European and Asian markets. Indeed, the new matching engine, which is located close to the existing BATS infrastructure in the London Slough Campus data centres, will target specific FX currencies that dominate the European and Asian trading hours.

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Matching describes one of the main types of processes by which banks and other major financial institutions trade currencies with each other.

Source: TheCityUK
Source: TheCityUK

The strategic move seeks to take advantage of the fact that London remains the biggest geographic currency trading centre, with Europe generally accounting for more than half of currency trading globally. Indeed, it was estimated in 2010 that the city’s share of global turnover in traditional forex transactions was 36.7%.

For BATS Global Markets, the launch of the new London matching engine is a logical continuation of the acquisition of Hotspot FX. In a world which is increasingly interested in accessing and trading several asset classes, the ability to provide access to the forex market is key to success.

With Hotspot now under the BATS Global Markets umbrella, the timing is also ideal to leverage what BATS brings to the combination.

In a statement, BATS emphasised, “With Hotspot now under the BATS Global Markets umbrella, the timing is also ideal to leverage what BATS brings to the combination in terms of relationships, infrastructure and support as the operator of Europe’s largest stock exchange, BATS Chi-X Europe, and Europe’s largest trade reporting facility, BXTR.”

In a letter to clients and members, Chris Concannon, CEO of BATS Global Markets, echoed this sentiment: “Naturally, we will leverage the BATS infrastructure and personnel we’ve used to build Europe’s largest stock market as we grow our FX business.”

In the lead-up to the launch, the company has been vocal in drawing attention to its new offer. Accordingly, it has announced plans to incentivise customers by offering free trading for all transactions on its London-based matching engine to the end of 2015.

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Exchanges Eying Global Forex Market

The new BATS/HotSpot FX matching engine follows hot on the heels of Currenex, which last week launched a similar matching engine, also geared towards Europe, Middle East and Africa (EMEA).

More generally, the launch is part of a broader trend which has seen exchanges making moves to get a piece of the global forex pie.

Indeed, as the $5.3 trillion-per-day, decentralised FX market is pushed to become fairer and more transparent by regulators, and as technology increasingly aggregates pools of liquidity in the market, exchanges are spotting opportunities to compete with the traditional network of interbank trading platforms.

According to Chris Concannon, Chief Executive of Bats Global Markets: “End users are getting used to technology where they have a full view of the market. They are accessing more markets than they could ever do 10 years ago.”

Bats-timeline-Aug15

 

In addition to BATS’ acquisition of HotSpot FX from KCG Holdings for about $365 million, the Frankfurt-based exchange, Deutsche Börse, announced that it would buy German-based institutional ECN platform, 360T in late July for €725 million. 360T operates an interbank currency trading platform, including spot, forwards, options and swap products.

Moreover, Nasdaq came to the party in August, announcing plans to enter the forex market not through acquisition but via the launch of a platform for forex trading in 2016. Nasdaq’s new forex trading platform would seek to rival the current electronic forex trading platforms, including EBS, owned by ICAP PLC (LON: IAP), and Thomson Reuters Dealing, owned by Thomson Reuters Corp (TSE: TRI), along with other trading systems offered by major banks.

However, the exchanges have been facing headwinds in trying to displace the forex establishment – the well-established platforms and global banks. Hotspot recorded multi-year lows, with an 8.6% MoM decline in July.

 

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