Nearly two years on from its launch, spot foreign-exchange trading platform ParFX remains focused on on-boarding new bank and non-bank clients as it continues to compete for market share with incumbent platforms.
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Dan Marcus, chief |
“We are now beginning to see the benefits of our strategy, which has been focused on distribution and on-boarding,” says Dan Marcus, chief executive of ParFX at interdealer broker Tradition. “The number of institutions using ParFX grows every week and our focus for the rest of the year will be on continuing our on-boarding strategy and encouraging greater participation.”
Originally conceived by a group of top-tier banks that had become frustrated with the disruptive behaviour of high-frequency traders on incumbent FX platforms, such as EBS and Thomson Reuters Matching, ParFX launched in April 2013 after Tradition had been selected to provide the platform’s technology and support services.
ParFX does not yet publish volume data, making it difficult to gauge its market share, but it appeared to gain momentum last year as Citi and JPMorgan joined the platform, bringing the number of founder banks to 14, with others including Barclays, Deutsche Bank and UBS.
In August, GSA Capital and Virtu Financial became the first non-banks to trade through ParFX’s prime brokerage service. While non-banks typically ramp up their participation more slowly than banks, the platform has seen an increase in buy-side activity this year.
“We analyse our business on a regular basis and we’re very confident that our share of the market is getting bigger, as participants introduce more strategies into our world and we continue to on-board different types of trading participants, who will contribute to a rich trading ecology,” says Roger Rutherford, chief operating officer of ParFX.
Critics have suggested the business case for ParFX might have diminished somewhat in recent years, as new management teams at EBS and Thomson Reuters have instigated fresh initiatives and system changes to create a fairer trading environment. Nevertheless, the platform has continued to sign up new participants.
Central to the ParFX model is its ‘randomization’ logic, which applies a random-length pause of between 20 and 80 milliseconds to all order elements, with the aim of creating a more level playing field in which participants cannot gain an advantage purely through the speed of their own technology.
A similar measure was implemented on EBS in 2013, while Thomson Reuters is in the process of designing a randomization mechanism, but has not yet implemented it.
However, Rutherford believes it is not just randomization that sets ParFX aside from rival platforms – its transparent fee structure and trading rules are also part of its unique selling proposition.
While most incumbent platforms tend not to disclose the fees they charge for participation, with some offering different fees to different customers, ParFX charges a flat monthly connection fee, in addition to a transaction fee of $2 per million dollars of notional.
ParFX is not just about randomization ... it’s designed Roger Rutherford |
ParFX has been critical of the opaque fee structure on rival platforms, and prides itself on providing market data on an at-cost basis as part of the connection fee, in contrast to other platforms that derive revenue from the delivery of market data.
“Our founders didn’t ask us to design a rulebook – they selected Tradition to build a platform encompassing a unique model designed by them,” says Rutherford. “ParFX is not just about randomization; it’s also about transparency, low fees and efficient execution, and is designed to encourage better trading behaviour.”
The FX market has had to deal with exceptional volatility since the start of this year, primarily as a result of the shock decision by the Swiss National Bank (SNB) on January 15 to abandon the floor of 1.20 it had maintained on the EUR/CHF exchange rate since 2011.
While the sudden policy change caused mayhem for some banks and retail brokers, the leading trading platforms say they navigated the sudden move reasonably well. EBS declared that despite a mis-trade on its anonymous matching platform that had been dealt with, it maintained normal trading conditions throughout the day.
ParFX also maintained an orderly market, even though pricing might have been somewhat sporadic as some banks are said to have temporarily turned off their systems at the height of the volatility. However, the platform’s technology and safety mechanisms worked as designed, according to Rutherford.
The SNB decision ended a long period of subdued FX volatility, in which most leading currencies traded within very tight ranges, limiting opportunities for investors. Although the return of volatility has been welcomed, the fall-out from the SNB decision has left fairly widespread risk aversion.
“In general, we are in a risk-off environment where money is still sitting on the sidelines and firms aren’t really taking big positions, so the market just needs some healthy volatility to bring new trading opportunities,” says Rutherford.