ParFX expands into prime-of-prime business

By:
Solomon Teague
Published on:

It has been nearly 18 months since ParFX launched its Prime service, which enabled the prime broker banks among its clients to offer liquidity to their buy-side clients. Now it is looking to expand that to the PoP space, casting a wider net and bringing smaller funds into the fold, Euromoney can reveal.

ParFX will launch a prime-of-prime (PoP) service for its clients, with a pilot expected in the next month.

The electronic trading platform has a Prime service, launched in September 2014, which enabled buy-side clients to access the platform through their prime brokers. The PoP offering will extend this by offering liquidity to the PoP providers, through which a larger number of smaller funds will be able to access the ParFX platform.

ParFX says it wants to bring its "pure principles" – technological advantage should not automatically mean economic advantage; IT trading costs should be minimized; transparency is imperative; firm liquidity should always be promoted; all trading interest should be genuine; trading between counterparties should be as neutral as possible and the playing field should be level – to the PoP business.

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Roger Rutherford, ParFX
Roger Rutherford, COO at ParFX, says: "It is all about distribution for us – onboarding more counterparties and encouraging greater participation and diversity of trading strategies on the platform.

"An established global distribution network of counterparties, combined with our ethos of transparency and a level playing field for all participants, sets the foundations for stable growth and attracts genuine liquidity from all sectors of the market."

Russell Dinnage, senior consultant at consultancy GreySpark, says the move represents a natural evolution of ParFX Prime, in a market that has always been competitive, and an era of normalized volatility levels, declining volumes and increased competition around technology.

"Allowing prime broker banks to extend PoP services to other banks based in countries or regions where the prime banks might not be as active in spot FX trading as their PoP counterparts is an efficient and powerful tool for inter-dealer platforms to use to expand their reach," says Dinnage.

"As a white-label offering, PoP services in spot FX typically tend to appeal to end-user hedge funds or small-to-medium-sized asset management firms in Asia-Pacific, Africa, South America or in regions where there are FX broker dealers acting as the gatekeepers of access to an exotic, hard-to-trade but high-value currency."

He adds: "PoP services are an easy way for banks in those countries or regions to give their clients access to spot FX liquidity in the leading trading centres like London or New York."

Scaling up its involvement with the hedge fund community by onboarding PoPs seems like an interesting step for a platform that was originally conceived as a bulwark against the threat of HFT, given that many of those HFTs are hedge funds.

However, the PoPs typically represent a smaller class of fund, and the bigger HFT clients would probably already have had access to the system once they set up the prime brokerage (PB) service.

Liberation

ParFX argues that, while some funds do wish to use their advantages in latency, and will therefore choose a different platform, many funds feel liberated from the technology arms race by trading in the more democratic environment envisaged by the pure principles.

Joe Cassidy, a partner at KPMG who helped build the equity PB desk and HFT capability at Nomura, and later ran commodities and rates PB at Deutsche, says: "The world has moved on from latency being the big battleground in FX trading. You have to look at where the capital is being deployed, and hedge funds are not deploying the same level of capital they once were on low latency strategies.

"The concern now is more about liquidity, where it is and where it will be at the point of stress. It’s also about things like connectivity and transparency. The playing field is more level now than it used to be."

And transparency is the watchword for ParFX’s Prime – and new PoP – offering. It argues the anonymous and opaque nature of PB trading that has persisted since its inception has contributed to the rise in nefarious trading.

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Russell Dinnage,
GreySpark

Its crucial differentiator, it says, is an unprecedented level of trading transparency, requiring the executing broker, prime bank and prime client to give up their names post-trade – something not seen on other platforms. 

In recent weeks, ParFX has also added the Hungarian forint to the stable of currencies traded, which is offered in a pair with the euro. Approximately 90% of Hungarian forint trades are executed outside of Hungary’s domestic borders, and according to the Bank for International Settlements it is one of the 25 most actively traded currencies in the world.

ParFX has also added a number of new crosses on currencies already offered in US dollar pairs: AUD/JPY and NZD/JPY, recognising the liquidity in these Asian pairs; and USD/SEK, USD/NOK and USD/DKK, for clients wishing to trade Scandies against the dollar instead of the euro, as was previously available.

Future currencies or pairs additions will as always be determined by client demand, though there could be growing interest in more non-CLS pairs, after the success of its introduction of CNH last year.

And ParFX is not the only electronic trading venue busily expanding its offering into new currencies. TrueEX, a New York-based swap execution facility, recently executed the first dealer-to-client Mexican peso interest-rate swaps trades, between Société Générale and undisclosed institutional investors.

TrueEX says it is the only dealer-to-client platform offering execution and clearing for Mexican peso swaps.