The design phase of the platform has now been completed, and the build phase, which has been running in parallel to this, is progressing according to plan, says Marcus. By the time the platform goes live, Tradition hopes to have gathered commitments from the majority of the FX market to support it. “By then we certainly want much of the market connected; we’ve had significant interest in hooking up to this platform,” says Marcus. He adds that the firm has been in talks with as many as 30 liquidity providers about joining the new marketplace.
The broker says that it will sign up more market makers in the next two weeks, although it is unlikely to make public which firms have signed up in addition to the existing banks, Barclays, Deutsche Bank, UBS, BNP Paribas and Royal Bank of Canada. These names were made public when the platform was announced on May 30.
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| “One thing I doubt anybody will replicate is the matching logic, which is the real juice behind this platform.” Dan Marcus, Tradition. |
Based on Tradition’s existing Trad-X technology, much is being made of what is called matching logic, which is being built into the trading technology. Its objective is to normalize varying speeds at which the diverse pool of market participants access the liquidity pool.
In other words, it nullifies the situation whereby any given counterparty that is a milli-second or a micro-second faster gets a better result on execution.
“One thing I doubt anybody will replicate is the matching logic, which is the real juice behind this platform,” says Marcus. “We’ll obviously reveal it prior to launch, because people need to understand what we’re doing, and to be actually encouraged to trade on the platform.”
Of course, there are two sides to this, and it can be argued that if one participant has faster electronic access then it is up to the other participants to match that with their own investment in more efficient technology. Nonetheless, Tradition, with the backing of its supporting banks, believes that focusing on such degrees of speed doesn’t result in an “effective exchange”,
This new matching logic pits it directly against EBS, which in a recent exclusive interview with EuromoneyFXNews said it would implement changes to its platform by the end of the year, which would make many of the principles of traFXpure redundant.
However, Marcus argues that the two platforms are fundamentally different in the way that their trading rules have been constructed.
“We’re starting with a blank piece of paper and creating something that doesn’t necessarily rely so much on retrospective written rules,” he says. “Rather, traFXpure has rules that get programmed into the system.”
Since April, EBS has been working with some 30 of the leading market makers from the banking community and buy-side professionals to redraft the platform’s trading rules. These were published earlier this month, and now the firm is working intensively with the same group to redesign what are called system and policies, which set standards of behaviour on the EBS platform for all users.
The exchange, owned by Icap, will also ramp up its surveillance and enforcement, where certain disruptive behaviours will be subject to warnings and there will be specific escalations that will take away the ability to trade in this way.
Yet even if the programming of rules on Tradition’s platform is already written into the system, it cannot completely guarantee that tech-savvy traders will not find a way to circumvent the trading protocol.
“We’re making it [traFXpure] incredibly configurable, so if someone does manage to game it, we can change it,” Marcus says.
Tradition also hopes to further differentiate itself by providing post-trade name give-up, acting on market feedback, which has suggested that certain market makers exhibit predatory behaviour and then hide behind their prime brokers without giving up their names. The platform wants to be fully transparent, Marcus says.
“We see no reason, that if you’re trading on this platform and have an intention to trade, your name shouldn’t be given up to the counterparty post-trade,” says Marcus.
EBS did consider introducing name give-up as part of its re-launch, but took the decision not to include it, according to an Icap spokesperson.
Ultimately, with its offering, traFXpure hopes to shake up the established order by offering an alternative to EBS and Reuters as the dominant primary FX exchanges.
“Where we’re going for, apart from the key traFXpure vision which is the whole point of it, is to become a key player among origination platforms,” says Marcus.
With the support of three of the leading liquidity providers, which between them command a 35% share of the FX market, according to the Euromoney FX survey, they will hope that the rest of the market buys into their vision so it can gain critical mass, and therefore success.