Integral Development commenced business in 1993 and led the way with the first ever Internet based derivatives pricing and risk management system in 1997. Since then the firm has pioneered the use of advanced technology to deliver increased transparency, best execution and operational efficiency to banks, brokers and asset managers around the world. Integral’s CEO, Harpal Sandhu talks to e-Forex about the current product set of the company and is then joined by Brandon Mulvihill, Global Head of FX Prime Brokerage at Jefferies to tell us more about their joint venture TrueFX, an award winning purpose built FX OTC venue that was launched late last year.
HS: Harpal, you have had a long and illustrious career in the FinTech sector. What have been some highlights and key business milestones for you during that time?
There is no doubt a highlight of being in the markets for as long as we have been are the relationships we have developed along the way. Working in longstanding partnership with market participants, intermediaries, and other technology providers has been very important to us as we’ve grown our business and we are incredibly appreciative of the support we have received.
Since the company was founded 20+ years ago, Integral’s intention was to lower the barriers to entry in capital markets by using technology as a democratising tool. To make trading accessible in the OTC markets though, you need multiple services available to you, notably technology, credit, and liquidity. Of course these services have been around a long time, but more often than not they are offered as bundled services at a high cost, which has made access to the core market more expensive to the buy side.
We’ve been working hard and organising ourselves with other providers to lower these barriers, so any institution can access and trade at a fair price. This type of restructure helps to bring dramatic and long-term changes to a trading ecosystem, and I’m pleased to say our collective hard work is now coming to fruition.
HS: Please remind our readers about the type of clients that Integral now provides services for and the range of workflow and advanced execution solutions it offers to help them achieve competitive advantages in the FX market?
First and foremost, we are a technology company that enables capital market participants - including banks, brokers, hedge funds, and asset managers - to manage their risk and serve their customers optimally.
We help clients grow their business’ through the provision of highly configurable eFX automation technology which spans the full trade lifecycle. All our technology can be consumed as modular solutions for a fixed monthly subscription. And because our technology is built in a cloud environment, services can be deployed in a matter of weeks.
Separately, our ECN - the Open Currency Exchange (OCX) - brings together the widest variety of market participants and execution models into a single integrated network of liquidity. Our trading platform is supported by a global liquidity management team, who work closely with clients to help them optimise their eFX business across the network.
HS: Ok so let’s talk about TrueFX, the purpose built FX OTC venue which Integral launched with Jefferies in November last year. What are you each contributing to the joint venture?
TrueFX is something we are all very passionate about given its potential to help transform the marketplace. We launched with the objective of making high quality credit, advanced trading technology, and valuable liquidity accessible to any institution - irrespective of their size - in a single, low-cost and convenient environment.
It is a best-of-breed offering, with Jefferies FX Prime Brokerage acting as the primary credit intermediary, Integral provisioning the technology, and the world’s primary automated market makers in FX providing liquidity across the ecosystem.
We think of it as an OTC exchange, and by that I mean it is incorporating the best components found in a regulated exchange environment with the benefits of an OTC model. It’s really the best of both worlds.
HS: How would you describe the philosophy behind TrueFX and what it’s trying to achieve?
TrueFX delivers improved efficiencies across the three layers of the FX OTC market, that being credit, technology, and liquidity.
We set out to open up the market to the widest possible user base and have achieved this by bringing together independent organisations specialised in their respective fields into an innovative and self-contained environment. This has allowed any natural taker of FX liquidity - irrespective of their size - to gain direct market access to primary sources of liquidity in an organised, transparent, and low-cost way.
The service was started with support from Integral and Jefferies FXPB, however, in the last few months the venue really has taken off through a wider network of clearing members supporting an even more diverse range of clients. I think we’ve seen such high interest and uptake because people recognise how the service can help transform their business in a meaningful way, yet the simplicity of the venue makes it extremely easy to join and incorporate into their pre-existing business models and infrastructure.
HS: What specific efficiencies has TrueFX been designed to bring about?
The best way to answer this question is by looking at efficiencies by audience type. For market makers, we’ve created an ecosystem where they can stream custom prices to their customers directly, without intermediation. This is important because it allows them to offer better prices and reach a wider range of clients with lower risk. In respect to the network of clearing members utilising the venue, they are now able to expand their business to a broader client base who are showing interest in moving towards efficient OTC markets. For natural takers of FX liquidity, including retail brokers, macro hedge funds, asset managers, and regional banks; TrueFX affords access to the primary sources of FX liquidity without anyone getting between them and the market maker. Users of TrueFX can ultimately trade however, wherever and with whomever they want at significantly lower cost. In fact, all natural takers of liquidity can trade on TrueFX and use its technology at zero cost. Combined with significantly lower credit fees, total costs of trading FX are reduced by up to 80% in the TrueFX environment.
BM: Brandon, the legacy credit environment has become an increasingly difficult service for the buy side to navigate. In what ways does Jefferies FXPB credit intermediation through the TrueFX environment help to solve this?
The buy side has had to manage between market related costs versus credit related costs. Historically, banks have won this battle because they leverage their credit access to send flows their way, which monetizes their credit offering. Today, the buy side is taking liquidity management and algo creation into their own hands, which reshuffles their balance of priorities. TrueFX is perfectly timed for this.
TrueFX delivers a single access point for both technology and credit whereby both are priced for scale. Immediately, buy side participants can complement bank liquidity with some of the largest market makers in the world. They can access their liquidity in a variety of ways, without any minimum ticket fees, while settling through a centralized institution in Jefferies.
BM: How does TrueFX manage to significantly reduce costs?
The primary way TrueFX reduces costs is via the elimination of third-party fees such as settlement and post trade messaging. Because the ecosystem is direct and client to client, there is no need for settlement with parties outside of the ecosystem. Additionally, Jefferies and Integral developed all required post-trade messaging so the ecosystem is fully self-sufficient.
HS: What problems have the buyside traditionally faced when it comes to technology and how have you designed and engineered TrueFX to address these?
Buy side institutions should not have to be technology companies, yet I think it’s fair to say these organisations have had to spend a lot of time and money on integration and technology projects.
The technology underpinning TrueFX was built with the automation and workflow efficiencies of a buy side audience or a natural taker of FX liquidity in mind. These efficiencies cover all aspects of the venue, spanning trading workflow, technology, and intermediation.
The venue has been built to ensure that the many and varied primary sources of liquidity a buy side audience needs to connect to are easily accessible. Users also get to utilise high quality - yet low cost - credit and clearing services. Cost savings are incurred thanks to the fully integrated and centralised ecosystem that allows intermediaries to pass cost savings directly onto the client.
We’ve created an extremely efficient state for customer workflow, including the ability to trade using a wide range of execution styles beneficial to both maker and taker. Users have the option to trade via anonymous matching, bilaterally with preferred counterparties, or at mid-point to off-set risk. The venue also offers a small ticket friendly environment, meaning users can submit as many tickets as they want without penalisation as there is no minimum per-ticket charge.
HS: Is TrueFX open to all market participants and how ambitious are your plans to grow its user base?
In short yes, it is! TrueFX is open to any institution that wants to use it. The venue is facilitated by leading and independent FX organisations specialised in their respective fields of technology, trading, and clearing. This network takes away the burden of our clients having to be technologists, needing a large balance sheet to access credit, or trading necessitating relationships with multiple intermediaries to access liquidity.
It’s all about removing these barriers and supporting any institution wanting to trade FX - anywhere in the world - that makes TrueFX such a compelling proposition.
BM: You have also launched the TrueFX clearing network. Please tell us a little more about it and what it offers?
As mentioned before, TrueFX is built for scale. Integral provides technology scale while Jefferies brings the ability to clear an enormous amount of tickets in a cost-effective manner. The more ecosystem customers, the better the system runs. Enter the TrueFX Clearing Member or TCM.
Clients can either access TrueFX directly through Jefferies or they can gain access to the ecosystem via a TCM. TCMs directly clear each trade, charging the underlying client a commission. TCMs have the flexibility to determine their liquidity on offer, further differentiating themselves.
To date, we are thrilled to have AxiCorp, FXCM, Sucden Financial, and Velocity Trade as the first TCM’s on offer.
BM: How supportive of TrueFX have you found market participants to be so far and in what ways has this helped you to accelerate the development of the service?
Market participants have been far more than supportive, and are actually driving the direction of the ecosystem. One factor that makes TrueFX different is the multitude of ways clients use the product. Some participants want fully disclosed liquidity, some want undisclosed, some want a combination. The end benefits remain the same, but the delivery of the product is dynamic. Thanks to market participants, our disclosed and undisclosed offering is now live with clients accessing liquidity from Integral in LD4, NY4, and TY3.
BM: How resilient has TrueFX been during the Covid-19 crisis?
Firstly, I would like to address our industry. FX is almost entirely an online enterprise, with everyone quite accustomed to the 24X5 nature of our market. I think the industry has handled this pandemic extraordinarily well. It is certainly sad that our transient style of business in FX grinded to a halt, with many popular conferences appropriately cancelled. This pandemic has us missing those business trips and meeting with people face to face, sharing our collective experience. I sincerely hope all are well.
Circling back to TrueFX, the product itself has been galvanizing. At Jefferies, we shifted a few technology priorities to support this exciting endeavor. Integral has brought in grade A talent to the firm, folks who proactively made the decision to be part of this story. We have bolstered liquidity, optimized performance, and acquired a new TCM all during this pandemic period. Yet, the gravity of attracting great minds is what I think we will look back on a year from now as truly distinct evidence of the products’ resiliency.
HS: TrueFX is built in an ultra-low latency cloud-based environment. In what ways is the Coronavirus pandemic likely to play into the strengths of FX in the Cloud and further strengthen the value proposition of platforms like yours?
We know the financial industry has been on a journey in moving towards acceptance of cloud computing. I think it’s fair to say that today, incorporating cloud into an organisation’s infrastructure has to be a central part of any institution’s tech strategy. The need for flexible architecture is being felt even more acutely at present, as organisations manage distributed workforces, who are in need of continuous access to high-performing technology wherever they are working.
Of course, cloud computing is not just about remote working. From hardware, software, and network layers, our systems were built from the ground up for ultra-low latency and high reliability. The reality is we can deploy and deliver premium FX services at a fraction of the cost through cloud. Today more than ever these cost reductions are welcomed in the market.
TrueFX is case in point. It’s only by Integral’s technology operating in a cloud environment and already at scale that we can pass such significant cost savings - that being access to free trading and technology - onto the client.
BM: In what ways have you recently been working to enhance the TrueFX service?
Onboarding. Right now, we continue to onboard new accounts directly or via a TCM. We onboarded market makers, so we have been mapping direct liquidity steadily. In addition to this, TrueFX aims to increase market share with a couple of different buy side participants. We anticipate a lot of meaningful updates in the fall, and we have one update that we can discuss now.
Jefferies FXPB has revolutionized the way clients roll their overnight positions. Jefferies teamed up with Integral to launch an advanced trading platform for clients to execute their rollover swaps and residuals. Liquidity is sourced from a collection of the largest market makers in the world with all-in pricing and no brokerage charges. Jefferies FXPB customers will now have the flexibility to perform their roll and residual trades on competitive pricing and on their own schedules, 24/5*. We believe a swap platform with multi-contributor derived liquidity, offered directly by an FXPB, to be the first of its kind within the industry.
I close with this thought because while our latest offering sits adjacent to TrueFX, it is yet another example of a scalable solution we have created with Integral to significantly improve the trading experience for our clients. Stay tuned for the next update.
HS: What steps are you taking to facilitate access to TrueFX and what factors are likely to influence its growth over the next few years?
We are taking every step to make sure the venue is accessible to any institution that wants to trade FX. This means we will continue to strategically invest in TrueFX, so users can benefit from the workflow efficiencies and low-cost trading environment. At the moment we are looking at how we can integrate more forms of connectivity into the network, with the option for a user to integrate the service into any environment they require - spanning both institutional and retail connections.
We’re also looking to add significantly more capacity to the network, so as we expand our partnerships to include the widest array of clearing members, we will be able to serve any part of the FX market wanting to participate.
HS: All in all why is TrueFX so transformational for the buyside?
Simply put, TrueFX significantly cuts the costs of trading FX and makes trading directly with the leading automated market makers accessible to anyone that wants it. For the first time, users have access to low cost credit intermediation combined with a fully integrated and free technology and trading offering. All this makes it possible for the market to open up and for any user to access primary sources of liquidity directly.
Of course, these types of services have been available as bundled offerings for some time. In recent years though, what’s happened is the market is now ready for innovation and wants access at a fair price. With the motivation of independent providers - like Jefferies and Integral - we can make simple yet powerful concepts like TrueFX a reality at an extremely low cost. It’s like when the phone industry was democratised by removing the excessively high costs and tariffs that were previously a foregone conclusion. That’s what we’re trying to achieve with TrueFX and it appears the FX market is now ready to adopt a new model.