Coming to market is SPOTEX, a new quote driven, US-based spot FX ECN. Earlier this year, Forex Magnates reported that John Cholakis was appointed Head of eFX Sales & Liquidity at the new trading venue. Having spent much of the year on finalizing its offering and technology, SPOTEX launches with liquidity from top bank and non-bank market makers, as well as counting among its initial customers a large number of retail Forex brokers and several institutional buy-side customers.
Learning more about the ECN, Forex Magnates spoke with John Cholakis and Chief Operations Officer, Chris Mitchell from SPOTEX. They explained that first and foremost, they consider themselves a technology company. As such, they view their ECN as a solution to solve the problems experienced by both liquidity takers and providers. For liquidity providers, they want to know that traders aren’t abusing their quotes, while the buy-side is interested in high fill ratios and near zero slippage. To provide a solution, recent ECNs, which have been launched over the last two years, have been utilizing what they call separate trading rooms for different types of clients. Based on customer profile and risks associated, liquidity providers price their streams accordingly.
Evolving the trading room model, Cholakis explained that they are differentiating their ECN by providing multiple tiers of profiles, saying, “The trend has been to create trading pools, but those are a bit limiting. We’ve added more granularity to offer multiple layers of retail, institutional etc.” He added that the structure will provide more flexibility for moving between rooms, without getting locked into inferior pricing, with retail customers receiving the best liquidity.
In addition to the liquidity pools, which provide clarity to liquidity providers regarding which types of clients they are disseminating pricing to, SPOTEX incorporates algorithms to monitor fill ratios and execution speeds, among other attributes. Cholakis explained that the algorithms are designed to reward liquidity providers with the best acceptance rates, sending them more order flow. Overall, the process is expected to benefit the buy-side as their trades are sent to the destination providing the highest execution quality.
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Accessing the ECN is based on using prime broker relationships. The process is similar to that of other ECNs, where there is no central counterparty, with clearing provided by prime brokers. Compared to other ECNs using a trading room structure, SPOTEX differs from that of CitiFX’s TradeStream where customers deposit funds directly with Citi, but is similar to that of FastMatch, which relies on prime broker relationships.
Along with their ECN, SPOTEX is also coming to market with what they believe is a sophisticated back office solution for retail brokers. Mitchell explained that the back office product was created in conjunction with a retail broker. He added that overall, SPOTEX believes that the product differentiates their offering, as it provides an end-to-end solution of sourcing liquidity, customizing it and monitoring risk, along with a client portal section.
As a result of the solution, Mitchell expressed that on their launch they are targeting STP brokers which SPOTEX believes can deliver a solution that will provide tight pricing structured for the retail market, along with the back-end software to support customers. For brokers electing to use the end-to end solution, the product integrates with front-end retail platforms like MetaTrader, but is controlled with SPOTEX’s back office software. While SPOTEX only offers spot FX, Mitchell added that they are currently working on a solution for brokers to enable them to also handle CFDs.