Alan, it’s been a while since we last interviewed you. Please can you remind us about how the FXSpotStream model operates and the services it offers?
FXSpotStream was built to bring greater efficiencies and transparency to the FX market. Our business is funded by our Liquidity Providers (LPs) who pay an agreed fee on a quarterly basis unrelated to volume. The more volume an LP trades over the Service the less they pay per million traded. As we are solely funded by the LPs there is zero cost to our clients.
Other efficiencies found in our business include the way the company is structured. For example, in other models if you want 10 LPs you would need 10 separate physical connections, which would all be charged individually and paid for. When you add up all the connections with all the LPs and their clients it turns into a significant amount. Using FXSpotStream we have a normalized API to our 14 global LPs. As a result, our clients connect and write to FXSpotStream once and then can decide how many LPs they would like to see over that single connection in New York, London and Tokyo.
There is no need to add a new physical connection every time a client wants to trade with a new LP because with FSS we have already done the work so it’s as simple as flicking a switch. These are just the efficiencies of the physical connection, there are also the benefits of our team coordinating most of the onboarding work, which means less time waiting in a queue at each LP and a faster go live. This all adds up to a better experience and faster time to market for our clients and LPs.
You had a 21% YoY volume increase in 2019. What factors were behind that performance?
We have been extremely pleased with the progress of the business, which continues to exceed all our expectations. We closed our best year ever in 2019 since launching the Service over 8 years ago. In 2019 we experienced tremendous growth on all fronts. In addition to the 21% YoY increase you mention, in 2019 we also set 3 monthly ADV records with August hitting an all-time ADV high of USD43.2 billion (which we have now surpassed with a new record in March of this year at USD62.4 billion). Last year FXSpotStream also grew at the fastest rate of all eFX cash channels for the second year running. The total traded volume supported in 2019 was over USD 9.35 trillion - an increase of 1.61 trillion when compared to the prior year.
Every year since we launched the Service in 2011, we have grown our volumes YoY. The reasons behind the success of the Service are many, but one of the key factors has to do with the business model we referenced above - a no fee service to clients that receive better pricing from the largest global FX banks that themselves do not pay a per transaction fee to trade with their clients on a fully disclosed, bilateral basis. In addition, both Liquidity Providers and clients can achieve great efficiencies and save a substantial amount of money in facing each other over a common API supporting various FX and Precious Metals products. Just as important is the unmatched 24-hour level of support our global team provides from our offices in London, Tokyo and New Jersey.
Our growth, of course, coincides with a trend we have been seeing for several years in which we see trading migrate to disclosed versus anonymous channels. Given heightened interest from market participants on market impact, keen interest in the nature of liquidity and transaction costs we expect the shift in trading preferences to continue and we look to capitalize on these trends.
What about the number of clients using your service? How has that been expanding?
When the service started, we were mainly focused in a single region. The aim was to not only grow the number of clients using the Service but also increase our global footprint which we have achieved very successfully. In fact, the number of clients using the Service has grown every year since our launch and this is globally. Overall in 2019 we grew the number of clients trading on the service by 31% when compared to 2018 and there were double digit gains in every region.
The growth has continued in 2020 and our global pipeline is significant. There are still many areas for us to target and our global sales team work closely with the Liquidity Providers to ensure we are addressing the clients they want to see using the Service.
Are you seeing significant demand for specific products?
We always remember our core product and like we did when we formed the business in 2011 we remain focused on our Spot FX API offering which represents the majority of the volume we support today.
Of course, growing the product offering remains a focus and nearly 3 years ago we added NDFs and NDS to complement the already diverse product suite. Today we support FX Spot, FX Forwards, FX Swaps, NDF/NDS and Precious Metals Spot and Swaps. In 2019 while we grew all our supported products the two standout performers were NDFs and Forwards, which grew by 170% and 1,122%, respectively.
While this was from a lower supported volume than our Spot and Swaps business it shows the demand amongst our clients for these products and we expect strong growth to continue in 2020.
How popular is your web-based analytics suite and what expectations do you have for this going forward?
Very popular. We developed our powerful analytics tool, FXInsights, to continue to service our LPs and clients and to meet the need in the market for trade related analytics. FXInsights, which is free to our clients, delivers real-time data to both clients and Liquidity Providers to meet the business challenges and demands of trading FX and Precious Metals. It also continues FXSpotStream’s focus on transparency and interest in helping users manage and analyze the entire life cycle of an order.
We continue to listen to our clients and LPs to understand what they require in this fast-moving market, which has resulted in the launch of a number of new reports over 2019 and 2020. This development continues and we are currently in the process of launching later this quarter our enhanced decay analysis report which will add further value for both our clients and LPs.
What steps have you taken to add to the liquidity available on your platform?
We constantly evaluate the panel of Liquidity Providers but do not have a specific number of LPs in mind. What is important is to have the right mix of LPs and clients that help grow the Service and the volumes we support.
As we recently announced, Barclays have joined FXSpotStream as our 14th Liquidity Provider. We expect to have Barclays live globally before the end of this quarter. We have also just announced that Societe Generale will join as the 15th LP to the Service. We are also targeting to have Societe Generale live before the end of June. The addition of Barclays and Societe Generale adds to the liquidity already available to our clients from the existing 13 Liquidity Providers: Bank of America, BNP Paribas, Citibank, Commerzbank, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, MUFG, Standard Chartered, State Street and UBS.
The addition of 2 new LPs to the Service alongside the existing 13 FX banks will continue to make FXSpotStream the desired destination as the leading global FX streaming disclosed service in the market.
Who are the key members of your global executive team?
We view ourselves as one team, and globally every member of the team plays a part in making sure we deliver the highest quality service to our banks and clients. Whether it’s our CTO, our Head of Product and the expanding product team, our Head of Sales and our global sales team, our many support and onboarding team members, our CFO and finance team, every person at FXSpotStream plays a key role in helping our valued clients, LPs and vendors partners get what they need from the Service.
Although we are always talking about the electronification of FX how important are getting the right people in a business like yours?
It is vital that any business has the right people to deliver the product offering and FXSpotStream is no different. At FXSpotStream we have an excellent team culture and our priority is always to ensure the service is available and to deliver outstanding customer support. As a result, we truly are one team, and everyone plays a part in making sure we deliver to our banks and clients.
As we have grown, so has the depth in the knowledge and level of expertise of each person on the team. We have people who have been with us for many years and we continue to add individuals who bring to us their experience in the FX market. We, of course, look to hire the best talent, but we also look for people who can work as part of a global team and have the desire to move the ball forward and continue to help build the business.
In what ways do you think the value proposition of FXSpotStream has strengthened over the last year or so?
A no cost offering to clients and a flat fee to Liquidity Providers for unlimited volumes transacted, all supported over one API and one connection is an extremely compelling and value producing proposition. And, every year we are in business our value proposition only strengthens. You don’t need to look any further than the growth of our volumes and clients every year as well as the ever-expanding product offering. The more our banks trade, the lower their “effective rate” becomes.
The lower their effective rate, the more they want to use our Service to trade with their clients to continue to lower the cost of a Service they pay to use unrelated to the amount of volume transacted. The more the LPs trade with their clients at a reduced cost, the better it is for the client as the clients should expect to trade at a better price. Both the cost of trading and the price at which participants trade continues to be extremely important and that’s exactly our volume proposition.
In addition, clients can trade as they wish without doing all the work involved in connecting to multiple bank APIs. Not only are clients getting better pricing, but they are saving money when using the Service and they pay nothing to use the Service. The formula works, and the proof is in the success and growth of the Service.
How has your business been performing during the current market turbulence and disruption caused by the Corvid 19 virus?
At this time our thoughts are, of course, with all the people around the world who have been impacted by this virus. We hope for a quick recovery for all those affected and for a reduction to the spread of Corvid 19.
We have seen significant increases in volume over FXSpotStream. In March we set all new volume records. We recorded a new ADV high in March of USD62.4 billion beating February’s prior ADV high of USD47.84 billion. For the first time since the Service was founded in 2011, we crossed the USD1 trillion mark in a single month with March recording a new monthly volume high of USD1.372 trillion. We also set a new daily record on March 9th at USD89.6 billion besting the previous record set in February of USD86.9 billion.
At the same time, and despite record supported volumes, we experienced no system issues whatsoever. We saw a 100% increase in orders when compared to January and the number of message updates per second also increased by 300% versus what we saw in January.
In addition, the volatility in March was extreme, but our banks were pricing throughout the day and were there to do business with their clients. An important part of trading is getting done when you need to get done. That continued to be the case in March. In January and February, the LP fill rate across all clients/products was 97%. Despite the extreme price action in March, the LP fill rate in March remained high at 93% which is a testament to the strength of our Liquidity Providers during these times. Our clients certainly appreciated these fill levels while facing challenges to get business done elsewhere.
Let’s talk a little about technology. How do you make sure that you can always maintain the capacity and performance of your service?
We are constantly evaluating the capacity and performance of the Service and making the needed upgrades and improvements. Mid last year we started another round of infrastructure enhancements. We were well ahead of what we needed and then came the unexpected March activity, so we were in a very good place to handle the increased capacity on the Service. In addition to adding capacity, we always address the performance of the Service. We are in the midst of some very significant performance related projects that we will be rolling out over the next 18 months plus.
How do you see the FX market evolving over the next few years and do you expect to see more consolidation and push back against increased fragmentation?
Well, there’s already been a fair bit of “consolidation” in FX venues being acquired by exchanges. We have not yet seen the consolidation result in a change to the market structure of the FX market. For us, however, the M&A activity has not distracted us from our mission, which is to continue to provide the best in class, fully disclosed service so our clients and LPs can transact at a lower cost and at a better price. We have also seen LPs looking closely at the vendors they work with and prioritizing the ones that make sense to their FX franchise.
These LPs are looking to reduce their costs of execution and provide a better price and service to their clients. That’s exactly our value proposition, so it lines up perfectly with our offering.
What plans do you have for rolling out new products and services over the coming months?
In addition to adding LPs this year, we have two large products we are working on that we expect to be online in Q2 of next year. Our plans are not yet public, but the products will continue to expand our offering. We also expect to be able to expand the types of clients that can use and benefit from the Service and the LPs pricing clients over the Service. Of course, in between launching new products we continue to make improvements to our streaming, RFS and limit order functionality as well as our analytics tool, FXInsights. It’s quite exciting to see how over 8 years after we started the business we are still operating on all cylinders!