FXSpotStream’s support for FX Algos and Allocations from their Liquidity Providing banks.
We sat down with co-Founder and CEO, Alan Schwarz, to find out a little more about the journey of FXSpotStream and the decision to support Algos and Allocations.
Hi Alan, can you tell us a little about FXSpotStream for those that may not be familiar?
FXSpotStream (FSS) was created in 2011 as a market utility with the aim of reducing the costs of trading FX. The core model remains the same today with clients paying nothing to access liquidity from up to 15 tier 1 Liquidity Providing (LPs) banks via a single API or GUI from sites in New York, London, and Tokyo.
LPs are charged a flat fee to trade an unlimited amount of volume, resulting in the LPs paying less on a per million basis as their volume grows and with no additional charges to pay to FSS each time a client is added. As a result of FSS’ model, clients can expect to receive better pricing from the LPs.
In addition, for clients there is no need to add a new physical connection every time a client wants to add a new LP. Also, because we have normalized all of our banks’ APIs, when a client wants to receive pricing from a new LP it’s as simple as flicking a switch. In addition to the efficiencies of the physical connection and one normalized API, there are also significant benefits from our team coordinating most of the onboarding work. This means less waiting time, a faster go live and ultimately, a better experience and faster time to market for our clients and LPs.
How has the company grown since its foundation?
The growth story of FXSpotStream has been an incredible journey to date. Since our formation we have added nine more LPs, taking our total to 15, including: Bank of America, Barclays, BNP Paribas, Citi, Commerzbank, Credit Suisse, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley, MUFG, Societe Generale, Standard Chartered, State Street and UBS. We have expanded the offering from a spot FX API to now include support for FX Spot, Swaps, Forwards, NDF/NDS and Precious Metals Spot and Swaps. We have added a GUI, a robust analytics tool – FX|Insights – and many order types and additional functionality.
Despite our growth, I still view FSS as a “start-up” and that’s how we run our business every day. We are about identifying an issue and finding solutions. Our team is about getting things done and moving the ball forward while maintaining the excellent customer service we have had from day 1. And it’s because we have a great team that is aligned with the core principles of our company that we continue to grow every year.
In 2020, FXSpotStream registered as the fastest growing eFX service for the third consecutive year, seeing an 18.52% increase in terms of overall volume supported. The service registered new highs in terms of monthly ADV (USD62.378 billion in March), crossed the USD1 trillion marks in terms of overall monthly volume for the first time (USD1.372 trillion in March) and saw growth in all streaming products year on year. Product specific, in 2020 Forwards saw a 73.4% increase and NDF’s were up 98.69% year on year. And that momentum has continued in 2021 as we registered our second highest ADV on record in January at USD49.036 billion, an increase of 14.6% month on month and 32.4% year on year.
Why have you decided to support FX Algos?
One of the core values of FXSpotStream is that we challenge ourselves continually to grow every year. In 2020 we began dedicated work to make major functionality enhancements by adding support for algos. We felt these additions strengthened our offering to current and prospective clients, while allowing us to target new areas of the market that we have previously not supported.
The use of FX algos has been a fast-growing segment of the FX Market as clients target the best way to execute their trades, while limiting their risk.
Algos have thus been a significant area of investment and focus for our LPs and coincides with the growing electronification of the FX market.
By supporting algos over our API we are targeting a gap in the market (with most algos being supported over a GUI) and meeting a growing demand from clients. These functionality enhancements allow FSS to support the additional e-FX capabilities of our LPs and clients giving them wider access to liquidity while reducing the risk of information leakage.
What technical work have you undertaken to facilitate this?
A great deal of work has taken place on our API to support the algos of our LPs. Our aim is always to make the interaction between our clients and LPs as efficient as possible. Clients seeking to access the algos of our LPs will not need to add any additional network infrastructure, connecting in the same way as they do today - accessing a normalized API through a single FIX session that provides access to algos offered by multiple providers.
The implementation of these enhancements will be available over the FIX 5.0 protocol, which offers greater functionality, a wider range of tags, a more robust application and state messaging. Notably, ‘Amend’, ‘Cancel’, ‘Fill Now’ and ‘Suspend & Resume’ capabilities will be available as part of the algos offering.
What access and Algo functionality will you initially be offering?
The initial launch will include added functionality to support algos in New York over our API, with London and Tokyo to follow shortly after. This will include support for resting orders and benchmark fixing orders. Following the launch of the algo functionality over the API, development to introduce algos to the FSS GUI will begin with the GUI targeted to be in production by the end of the year.
Clients will have access to the entire algo suite of our current LPs, equating to over 70 different algos, and over 200 different parameters. Clients will not pay FXSpotStream a fee to access any of the supported LP algos. This was a key focal point for FSS as the ‘free to taker’ model has always been a constant in our service. Any fee an LP may charge for access to their algos, of course, we do not influence.
Are there any other functionality additions to come in 2021?
We are also excited to announce that we will be adding functionality to support pre- and post-trade allocations.
Allocations can either be implemented by the client or through an OMS or third-party vendor. We are vendor agnostic and actively encourage our clients to discuss their opportunities with our partners to find the one that best suits their needs.
Allocations can be sent via either of the current FSS protocols, given it is supported by that client’s liquidity provider. We are also working on improved administrative tools to mitigate the challenges posed by the increased level of account management associated with allocation functionality.
What type of clients are you expecting to utilize the service?
The entry of FSS into the FX algo and allocations space will address a growing number of clients looking for a complete offering. The combination of the algo functionality with the support for allocations means we will be able to support a growing number of hedge funds, asset managers, multinational corporations, and regional banks. But of course, that is not the extent of our focus, and ultimately any client, with an interest in accessing the algo suite of a Tier 1 provider or needing allocation functionality, will be able to utilize our new algo service.
Alan, what was your career history before you co-founded FXSpotStream?
I graduated from Rutgers University with a degree in Political Science. I then attended Rutgers Law School where I received a law degree. After 10 years in private practice, in early 2000 I moved in-house and eventually joined BrokerTec becoming their Global General Counsel and Chief of Staff. Like FXSpotStream, BrokerTec was a bank owned consortium offering a matching engine for the fixed income market. BrokerTec began my introduction and interest in technology, the financial markets, consortium owned businesses and the commercial side. In 2009, I co-founded my first start up to incubate systematic FX trading teams by offering them capital, infrastructure, and trading software. My first start-up, along with my years as a lawyer and at a bank owned consortium, positioned me well for the co-founding of FXSpotStream in 2011 which calls on my background in FX and the financial markets, technology and growing a global business.