FNG Exclusive Interview… In January FNG carried news that FX streaming aggregation service provider FXSpotStream was adding functionality to support FX Algos and Allocations over its API. While that might sound technical to some, it is transformational from the bank owned consortium’s perspective. So we thought that it would be a good time to catch up with FXSpotStream CEO Alan Schwarz, and ask him to explain.

Here is what Alan had to say – on FX algos, liquidity, managing through COVID, and a whole lot more!

FNG: Hi Alan, and thanks for joining us today. Please let us know a little more about the announcement you made about adding algos and allocations functionality at FXSpotStream.

Alan: In 2020 we began dedicated work to make major functionality enhancements by adding support for algos; strengthening our offering to current and prospective clients, while also allowing us to target new areas of the market. We will have the FX algos of our banks available over our API next quarter.

The use of FX algos has been a fast-growing segment of the FX market as clients target the best way to execute their trades, while limiting their risk. Algos have been a significant area of investment and focus for our Liquidity Providers (LPs) and coincides with the continuing electronification of the FX market.

FNG: How do you see adding algo functionality being a potentially transformational move for FXSpotStream. What does it mean for your clients?

Alan: A great deal of work has taken place on our API to support the algos of our LPs. Our aim is always to make the interaction between our clients and LPs as efficient as possible. Clients seeking to access the algos of our LPs will not need to add any additional network infrastructure, connecting in the same way as they do today – accessing a normalized API through a single FIX session that provides access to algos offered by multiple providers.

By supporting algos over our API we are targeting a gap in the market (with most algos being supported over a GUI) and meeting a growing demand from clients. These functionality enhancements allow FSS to support the additional e-FX capabilities of our LPs and clients giving them wider access to liquidity while reducing the risk of information leakage.

FNG: What changes are you seeing in the FX liquidity world over the past few months, as volumes (and volatility) have soared?

Alan: In recent years there have been a number of market events that have driven volatility, and March 2020 was perhaps the biggest recent example of this.  During times of stress, we have seen the FX market continue to perform very well across the board. We saw extreme volatility, but that did not equal disorder. In an orderly market you are able to do what you need to get done, and in March of last year there was an orderly market with banks pricing consistently and risk being transferred. Importantly, the FSS infrastructure, connectivity and communication tools functioned flawlessly in March 2020.

From an FXSpotStream perspective, being a fully disclosed platform has significant benefits during market volatility. Clients want to know who their counterparty is and that they can rely on them to be there during those times. As a result, we have continued to grow the Service both in terms of overall volume and clients, year after year, as the migration from anonymous to disclosed channels continues.

With the current landscape, and the number of people working remotely still trending upwards, we have also seen a growing need for automation in trading. Our move to support FX Algos and Allocations over our API is yet another example of FXSpotStream raising the bar when it comes to technology and meeting the needs of our banks and clients.

FNG: It looks like 2020 was a year of significant growth for FXSpotStream. How did you manage that growth (including internationally) given the limitations of the COVID pandemic?

Alan: 2020 brought a unique set of challenges for everyone. Yet, FXSpotStream continued to operate with zero interruptions to its Service. March saw the order count on the Service up 100% compared to January, and message updates per second up 300%. Despite that, the Service was available 100% of the time, and an impressive fill rate of around 93% was maintained by the LPs versus the norm of 97%.

In 2020, FXSpotStream registered as the fastest growing eFX service for the third consecutive year, seeing an 18.52% increase in terms of overall volume supported. The service registered new highs in terms of monthly ADV (USD62.378 billion in March), crossed the USD1 trillion marks in terms of overall monthly volume for the first time (USD1.372 trillion in March) and saw growth in all streaming products year on year. Product specific, in 2020 Forwards saw a 73.4% increase and NDF’s were up 98.69% year on year. And that momentum has continued in 2021 as we registered our second highest ADV on record in January at USD49.036 billion, an increase of 14.6% month on month and 32.4% year on year.

When the pandemic started in Q1 last year we successfully transitioned all staff members to work remotely and are now in the process of returning to the office. Last year we retired all desktops and every employee globally now has a laptop – more powerful than the old desktops – with a full set up at home and in the office to make working from either location seamless. In New Jersey, our team has moved into new larger space, with high ceilings, improved ventilation, and ample space to allow for social distancing. Our Tokyo team just moved to a larger space and we expect them to be back to the office in March. We are currently working to identify similar opportunities for our London team, while of course in all cases monitoring and adhering to local guidelines. Our focus has been and will always be to create an environment where employees feel safe and empowered to do their job.

FNG: What else can we expect to hear from FXSpotStream in the coming months?

Alan: We are also excited to announce that in Q2 we will also be adding functionality to support pre- and post-trade allocations over our API. Allocations can either be implemented by the client or through an OMS or third-party vendor.

The combination of the algo functionality with the support for allocations means we will be able to support a growing number of hedge funds, asset managers, multinational corporations and regional banks. But of course, that is not the extent of our focus, and ultimately any client, with an interest in accessing the algo suite of a Tier 1 provider or needing allocation functionality, will be able to utilize our new algo service.

Later this year we will be making the offered FX algos and allocations available over our GUI. We are targeting to have the GUI available with algos and allocations in Q4.

And, we have one more very large and significant project that we are advancing in the background. You’ll have to stay tuned for our expected announcement before the end of the year.