Tanuja Randery, the company’s chief executive officer, says there is an increasing number of players entering the FX markets who are being challenged by budget constraints, which make it more difficult for those outside the world’s largest FX providers to get efficient access to market liquidity at competitive prices. “There is an increasing trend where FX is turning out to be an interesting diversification strategy for our clients, and therefore for us as well,” Randery tells EuromoneyFXNews.
However, she says, when “you add all that cost up and look at what banks are going through, a number of them – perhaps most banks outside the top 20 FX players – are going to outsource their infrastructure to someone like us”.
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| Tanuja Randery: "You add all that cost up and look at what banks are going through, a number of them - perhaps most banks outside the top 20 players - are going to outsource their infrastructure to someone like us." |
MarketPrizm says that through its existing infrastructure and presence in other asset classes, such as equities, derivatives and commodity markets, with networks and co-location hubs based in all the leading trading centres, it can offer a competitive product to banks and other active traders.
“The more asset classes we introduce, the more clients are able to use one infrastructure to access multiple asset classes, and so there’s that consolidation that has to occur in the industry from across the spectrum,” says Randery.
This consolidation offers a substantial opportunity for market data and infrastructure providers, as more and more trading firms seek to connect via data centres and to access an increasing array of liquidity providers.
With FX markets becoming characterized by electronic and algorithmic trading among hedge funds, banks and proprietary trading firms, the costs of connecting up to what is, relative to equity markets, fragmented liquidity, is on the rise.
Economies of scale
Furthermore, the importance of co-location in multiple locations has also increased. Through PrizmFx, clients can now simplify their access to the multitude of platforms, co-locate close to each matching engine, and use a single connection for price discovery and execution, and effectively pay for what they use.
“It’s absolutely about cost and unit cost of the infrastructure,” says Randery. “The only way [banks outside the top 20 are] going to play in the top is by leveraging on the type of technology we have got, and they will look to outsource because it will reduce their costs significantly.”
PrizmFx will offer a flexible model to clients. For instance, rather them taking a full rack at a data centre, which can cost £200,000 a year, they can take a part of a rack, and narrow it down to a per basis/portion of a rack.
MarketPrizm’s existing global infrastructure leaves it well positioned to cater to the FX industry. It has a presence in the Slough data centre, in NY4 and CME in the US, and in Asia it has Singapore, Australia and Tokyo. It also has networks deployed in Europe and Asia that are low latency and connecting all of those markets, and has co-location deployment in all of those centres too.
“In Asia, I can see people connecting to us locally in Singapore to access the key markets; in Tokyo they would connect to us even in the KVH data centre or in Equinix TY3,” says Randery. “We can easily do that versus people having to establish relationships, get contracts done, and there are all the tax implications of doing business in Asia.”
MarketPrizm is majority owned by Colt Group. It acquired the controlling stake from Chi-X Global in May last year, as it seeks to leverage off MarketPrizm’s financial data offerings and trading infrastructure, as well as its own portfolio of low latency connectivity and proximity hosting, to gain a bigger slice of services to the financial markets.
Colt’s main shareholder is Fidelity Investments. Randery became CEO of MarketPrizm when Colt took control.
Further cost consolidation
As far as future trends in market data and connectivity costs in the FX market go, Randery argues there is room for further cost reductions, which can only be optimized with more standardization brought about by regulation.
“Because you don’t have a MiFID rule, you don’t have regulated exchanges,” she says. “As a result, each of these ECNs [electronic communication networks] and trading platforms are all very unique. The rules are different, the time slicing is different, the convergence formats are different, and so there is no standardization.”
Whereas in the equities market, a market data vendor, such as MarketPrizm, can buy the market data from the exchange as a vendor of record for the exchange, and can redistribute that to their clients and then normalize that into one application programming interface.
In the FX space, the market data provider cannot have that relationship with the ECNs – the client needs to have that relationship with each ECN.
Randery says: “We act on behalf of our clients, whereas in equities we act on behalf of the exchange and the client, and there’s a little bit more in optimization, cost savings to come, if that world was opened up.”
PrizmFx will compete with FXecosystem, which was founded in June 2010 by Jock Percy and Jon Vollemaere, which this year began building out its sales teams in the US and Europe.