Brandon, last year you took on a more pivotal role in establishing FXCM’s Institutional offering. What do your day to day responsibilities now involve?
At the end of summer 2014 I assumed the Global Head of Sales role for FXCM Pro. My remit was to better leverage FXCM’s distribution centres so as to grow our three primary verticals. Those product lines were firstly FastMatch, our JV with Credit Suisse which offers a matching engine, ECN, and aggregator technology to the interbank community. Secondly, FXCM Prime, our clearing business catered to low and medium latency funds as well as emerging market banks and institutions. Thirdly, our liquidity solutions for wholesale FX and CFD trading which we have on offer for equity brokers, futures brokers, and FX/CFD brokers globally.
Post SNB, we tweaked our business plan after the announcement of FastMatch as a listed asset for sale, thus focusing instead on FXCM Prime and our wholesale business. In focusing on these two drivers for FXCM Pro, I spend 70% of my day with customers and roughly 30% of my day helping to create and execute our strategies related to these client segments.
The disposition of institutional non-core assets by FXCM has been widely reported. How important has the wholesale side of the business now become for the firm and what advantages does being smaller and leaner bring with it?
In 2014, our wholesale business did over $900B in volumes, and our 2015 run rate is on a similar trajectory. Yet, what makes this client segment particularly important is that we are able to generate higher profit margins compared to adjacent institutional business lines we managed previously.
One significant benefit of focusing on core assets as a company is a collective focus across all departments. Our wholesale business certainly is a beneficiary of this. Our clients access market data, and execute FX, Metals, Energies, and Indices via a single API. This year alone, we finished a messaging enhancement which cut latency times for API customers in half. We executed a deal in acquiring CitiFX Pro, which included a significant migration of their wholesale customers who traded via CitiFX Tradestream. In October, we launched enhanced CFD functionality, an optimization designed to better pricing and execution capabilities for automated traders in instruments such as indices.
Certainly, we have always produced results, but I would suggest that the pace of our output is stronger, and customers are experiencing this through tangible enhancements on our core product lines. As a result, we are excited to continue to announce more enhancements coming in 2016.
What range of services does FXCM’s Institutional department, FXCM Pro, provide and who are its main types of client?
FXCM provides a clearing service known as FXCM Prime as well as an execution and liquidity offering, known as FXCM’s wholesale business. Both are sold by distinctly different business units and cater to distinctly different audiences.
FXCM Prime caters to low and medium latency funds. These funds mandate the use of market data across multiple venues, such as Reuters, EBS, Currenex, FastMatch, Hotspot, and Bloomberg Tradebook to name a few. Generally speaking, these users have a business need to be a maker/taker across these venues and thus require not only access but the ability for a robust pre-trade credit check to function in both a maker/taker scenario.
FXCM Prime provides trade netting across multiple trading venues, including both ECNs and single bank platforms. Our pre-trade risk software provides single NOP allocation, thus giving traders the freedom to trade intraday on their venue of choice. In addition to high and medium frequency funds, FXCM Prime also works with proprietary trading shops, corporates, and emerging market banks.
Separately, FXCM’s wholesale business provides custom liquidity and execution services. This offering caters specifically to retail brokers, thus clientele that demands one platform, but robust liquidity solutions within it. And we make a big distinction here. If customers need multiple venues to trade, such as high frequency shops, they go to my team at FXCM Prime. If customers require one platform to connect to, such as the mandate from retail brokers, they work with my wholesale team. Today, we service a couple hundred wholesale brokers worldwide. Some benefits these brokers receive are the ability to write to one API for multiple asset classes, agency style execution in FX, small ticket sizes in FX with no additional fees, and cash optimization as brokers’ PnL is cross collateralized between FX and CFDs.
FXCM’s Prime of Prime offering, FXCM Prime is the second core part of its Institutional business. In what ways is your Prime product well positioned to take advantage of increasing demand for access to centralized clearing across multiple trading venues?
When creating our business model we kept a simple concept in mind. Customer demand has not changed, what has changed is the supply chain. Our focus was to provide a tier one prime brokerage experience to those who had lost such a service. And to do this, FXCM Prime had to build a clearing model that was truly agnostic, and it is this point that underscores our offering.
FXCM Prime has no incentive or directive as to where our customers wish to trade. In fact, we mandate that all clients execute contracts with both FXCM as a prime customer, and also with the ECN(s) of choice as users of those technologies. In the same way that a tier one bank isolated their desks between clearing and execution, we have done the same. The impact to the client is a completely transparent counterparty relationship, a model not widely on offer in today’s prime of prime space.
Additionally, we centralize all trades through our back office. Customers on FXCM Prime can buy in one venue and sell in another and easily see their net positioning through FXCM’s proprietary back office system. Along with statements, we utilize third party technology that provides our customers a pre-trade credit check on each trade. This allows FXCM Prime to establish one, master level NOP which our customers can more efficiently manage versus an NOP per platform model.
Finally, to really match the best tier one prime brokerage models on offer you must supplement your ideology and technology with support. Our team covering customers today is currently 20 people strong. Once again, our global support and scale is yet another element of FXCM Prime that the broader prime of prime offerings have yet to build.
FXCM recently doubled the size of its broker services desk which underlines how busy thing are. Who are the other key people in your executive team that have been shaping your institutional offering and driving growth of the business around the world?
Ornit Niv, CEO of FXCM LLC and Global Head of FXCM Pro is a driving force behind the department and FXCM Prime. Beyond the strategic decisions, Ornit is extremely hands on and involved with the execution of our business plan. As stated previously, the level of focus at FXCM right now is extremely sharp.
Having said this, it is significant to highlight how FXCM operates. We are far more of a flat organization than we are vertical. This fact is observed by the unprecedented managerial bench at FXCM. For example, Mark Bucaj (Product Management), Mohammed Khan (Operations), Tangie Coon (Support), Alex Dick (Legal), Brian Bauernschmit (Risk), and Brent Cotten (Sales) are all managers directly engaged in FXCM Prime, each with over ten years experience at FXCM.
Also, Justin Boulton, Global Head of FXCM Prime formerly helped create and manage the clearing business at Rabobank. Anthony Mazzarese, formerly managed sales and support at Citi FX Pro. Janill Espaillat managed our daily operations with FastMatch and transitioned to FXCM Prime to help manage operations.
Each and every person named is actively included in the progression of FXCM Prime. Our collective experience, first hand feedback, and open door policy creates an atmosphere for success. And my example using our FXCM Prime team serves as a microcosm for how we manage the larger team at FXCM Pro.
Who has responsibility within the company for developing and maintaining your IT infrastructure and how important is technology in helping you to innovate and stay ahead of competitors?
We are at heart, a technology company, thus we believe strongly in consistent innovation and enhancements to our technology. Evan Milazzo manages the global team at FXCM and Mark Bucaj specifically manages the technology infrastructure for FXCM Pro.
For clearing customers, our entire technology around FXCM Prime, which provides access to over a dozen single bank and ECN platforms is available thanks to the builds our technology team completed. Pre trade risk systems, three-point reconciliation processes, and redundancy considerations for FXCM Prime all require significant technology work, and our team did an excellent job with this product. While many prime of prime offers are being marketed very few of them offer the ability to trade against multiple platforms and settle via one back office, all while ensuring a single NOP allowance across platforms.
Now that the heavy work is complete, we will continue to add more ECN venues and single bank platforms to our product offering through 2016, thus further distancing our offering from the competition.
In what ways are you currently looking to broaden your product offering, for example with CFDs?
We see a massive gap within the CFD market. Whereas in retail FX, consumers can trade automatically via APIs and third party platforms without strategy or order restrictions, the CFD market offers no such market access. Index and energy CFDs on offer today are provided by market makers, either directly by the broker, or through a pass through system to one end liquidity provider. The result is simple. In order to protect the market maker, restrictions are put in place, and typically these restrictions limit or outright ban automated trading as well as large tickets. This concept is something we saw in FX years ago.
At the end of 2006 FXCM changed our execution model so as to provide retail consumers the ability to trade with any trading style without the need for restrictions. The result was overwhelmingly positive. FXCM experiences over 500,000 customer trades a day. This fact was made possible through the technology advances within our FX system to provide scale on a significant level while also addressing customer demand. Similarly, the CFD market is where the FX market was back in 2006.
As a result, we are excited to say the least with our recent enhancements for CFD trading. 2016 will be a year we focus significant resources toward further enhancements with the goal to give retail CFD consumers the same capabilities they have in FX. Our direct customers will thus stand to benefit, as well as our wholesale customers. Like FX, this offering will become the new norm, and brokers want this product to remain ahead of the curve. Going into 2016, we have more broker customers being on-boarded than ever before, and our CFD enhancements are a big reason why.