FX players focus on innovation

Agile software development is not a new concept. 

In 2001, a group of developers produced a manifesto that suggested that producing working software was more important than creating mountains of documentation, and that customer collaboration and the ability to respond to change should be prioritized.

LMAX Exchange observes that this approach allows new products to be brought to market more quickly and scaled faster, with development structured around two-week iterations and new software released into all production environments every fortnight.

The Agile approach to development has been implemented at many other FX market participants, such as Integral, which can roll out the first version of a new product and get it in front of real customers within a matter of weeks, explains Vikas Srivastava, its managing director for InvestorFX and business development.

Jeffrey Maron, managing director and head of market structure at MarkitServ, highlights another benefit of the Agile development approach – the ability to respond quickly to regulatory change.

“Agility is a key element for us because we have seen regulators move the goal posts repeatedly and solution providers must be able to react in real time,” he says. 

“For example, we have anticipated the growth of clearing certain FX products so when clearing of FX options takes hold our platforms will be able to facilitate the required connectivity to multiple clearing houses.”

Paddy Boyle, global head of ForexClear at LCH, observes that the firm has had hundreds of conversations with participants regarding whether and how to clear FX options and spent months with its initial participant group working through the implications of whether to clear the market cash-settled or physically settled.

In this context, any initiative that reduces the time for taking an idea from concept to live application can only help the FX market. One of the proposals on the table in the UK is the creation of an industry sandbox.

In 2016, the Financial Conduct Authority appointed Innovate Finance – the association that represents UK fintech companies – to lead a consultation process on an industry sandbox.

The objective of this sandbox – which would be developed and resourced by the fintech sector – would be to create a safe space for collaboration on new products and proof of concepts in an ‘off-market’ environment without reaching live consumers.

According to Innovate Finance, partnership formation, resilience and operational risk testing and technical readiness could all be addressed in an industry sandbox before accessing the regulatory sandbox. Open API FX platforms are seen as being particularly suitable for this type of treatment; an open API allows developers to create new versions or uses of a service.

FX market participants have given the concept a guarded welcome, with Kantox CEO Philippe Gelis suggesting that although it would work for early-stage companies developing their first product and looking for market validation, for more mature – and already regulated – enterprises it would not be a game changer.

Integral’s Srivastava reckons an industry sandbox would be beneficial “as long as it is not too rigid and allows for innovation”, while Jean-Philippe Malé, CEO of BidFX, observes that his company has created its own test environment, which is connected to a large number of liquidity providers and electronic communications networks.

This replicates the platform’s production environment and allows customers to test the operational and technical readiness of their systems.

Ram Komarraju, CLS’s head of innovation and technology delivery, suggests an industry sandbox would help reduce the substantial and redundant overhead incurred in the launch of every new product or service – especially solutions that require a network effect to be viable.

However, he also cautions that although advances in technology and development methodologies aid the development of new products and services, these advances are often counterbalanced by increased client expectations, regulation and cybersecurity challenges.

Alan Marquard, CLS’s chief strategy and development officer, adds cost to the list of potential obstacles, both internal development costs as well as the price to clients in terms of implementation and development.

“Then there are the funding options or hard payment commitments and the overall revenue potential and profitability,” he concludes. “Our clients’ resources are fully deployed, especially with the implementation of Mifid II [Markets in Financial Instruments Directive II] and the revised Payment Services Directive.

“We repeatedly hear from clients who have access to services that would no doubt improve things for them, but simply don’t have resources or funding to implement them.”