BGC also offers financial technology solutions, market data, and analytics related to numerous financial instruments and markets. The firm works with a broad range of financial and non-financial institutions around the world, offering them access to more than 200 financial products, through brands including, but not limited to, Fenics, kACE, BGC Trader, Capitalab, Lucera, and Fenics Market Data. We spoke to John Colasanti, Managing Director, FX & Rates Algos, to find out more about the FX side of the firm’s business.
John, what core FX platforms and products does BGC now offer?
The recent launch of Precision Algos for FX and US Treasuries is the latest addition to the suite of cutting-edge solutions that BGC provides to the market. The Precision Algos leverage Lucera – our industry leading hosting, connectivity, aggregation and price distribution provider – for market data and market access. Through Fenics FX, we provide a carefully managed and transparent ecosystem that delivers real, actionable liquidity to the marketplace at a low cost. Our Fenics Direct platform enables customers to trade aggregated vol liquidity at top of book directly with dealers. Fenics Market Data is a leading provider and generator of global financial and commodities market data. kACE empowers clients with software and analytical solutions to accurately price vanilla and exotic FX Options. Capitalab provides portfolio compression to bring capital and operational efficiency to clients as well as NDF Match to help clients offset fixing risk.
BGC specializes in delivering high-quality brokerage services and technology solutions for a broad range of
financial products
What support does Fenics offer via Precision Algos?
We’ve built a highly modular algo framework designed to support the rapid development of trading algos for multiple asset classes. Everything was designed and built in-house using state of the art tech and software development techniques. Lightweight and fast core components are standardized and reusable which enables us to focus squarely on trading logic. This provides a powerful customization framework that supports multiple levels of behavior adjustments from basic parameter tweaks to entirely bespoke strategies. It can be deployed on an agency or bilateral basis or as a white label solution to banks who want a highly customizable, best-in-class solution without the operational burden and high costs associated with developing and maintaining it themselves. For example, a single framework to support FX, treasuries and equities can be deployed on a single box which makes this an attractive white label solution for banks focused on reducing operational costs.
What strategies do you offer?
Out of the box we offer a variety of liquidity seeking, schedule driven, dynamic and benchmark targeting algos. The strategies offer user defined parameters and are easy to customize. The liquidity seeking algos include our IS algo iSEEK which leverages a proprietary market impact model that’s specifically calibrated to the FX market to efficiently seek liquidity across different venues. It builds a trading schedule based on order size, market liquidity, expected participation rate, volatility and spread and seeks to minimize slippage relative to the bid/offer mid at order entry with completion as close to the benchmark time as possible. Our SOR, or Smart Sweep algo, seeks to maximize liquidity capture by fully committing orders across different venues. As liquidity is sourced, it is rebalanced between different venues while maintaining the specified displayed quantity and can be customized to prioritize price improvement, costs or speed of execution.
My colleague Kathryn Zhao is Global Head of
Electronic Trading at the firm
In the schedule driven category, we provide a TWAP that offers configurable randomization to reduce predictability. Our VWAP algo leverages historical volume curves and trades over a specified time period. It adheres to the curve with some discretion based on profile and trader intent.
The core adaptive strategies are POV which dynamically tracks volume in real-time by continuously calibrating its participation and an Iceberg strategy which minimizes market visibility and impact.
You mention that this is offered as a white label solution to the sell side. What prompted this move?
The decision to enter the FX space was prompted by the success of our award-winning equity algo platform, the strength and experience of our algo development team and the overall trajectory of market demand. However, building market share in a crowded sell side space has its challenges. Rather than compete with the banks it makes sense to partner with them to provide a cost-effective solution that can be easily customized to accentuate their core strengths and meet the specific needs of their client base. We enable our partners to focus on differentiating themselves in other ways while reducing operational costs and maintaining the flexibility to adapt to constantly shifting market conditions and client demands with minimal effort and investment.
Our electronic FX trading and algo support team consists of specialists with deep domain expertise
Can you elaborate on the level of flexibility and support you offer to providers to help ensure they are meeting these needs?
Our framework offers extensive customization capabilities from simple adjustments within our existing strategies to the creation of bespoke strategies using an extensive library of components. Our research and development teams are constantly working to improve our product offering and the underlying components based on proprietary TCA framework so clients will benefit and see savings from our regularly scheduled upgrades.
Have there been any notable changes in the market which are driving demand for these services?
Institutions have always been focused on managing costs and as profit margins have shrunk, reducing costs has been key in trying to maintain profitability. Banks are realizing that the cost of building, testing, enhancing and supporting solutions can be significant so outsourcing commoditized solutions has become a great way to reduce costs. While FX Algo usage continues to grow, we’ve had feedback from banks indicating that the investment for an internal FX algo build doesn’t always justify the returns. White labelling algos is one way that banks can reallocate spend and resources towards enhancing their strengths and differentiators while allowing them to continue providing the execution capabilities that their clients need. FX providers recognize that they must have an algo offering to be a significant player in the space and partnering with BGC enables them to do so simply and economically.
How do you customise your offering to meet the different needs of various FX providers? For example, an established tier one bank compared to a newer entrant to the FX algo space.
Established banks with large client bases can leverage our client level customization capabilities to accommodate different system requirements while newer entrants can shorten the time to market and reduce spend on building solutions and connectivity. Both types of firms will benefit from our internalization capabilities and cost savings provided through our platform and our Global Support model.
We’ve built a highly modular algo framework designed to support the rapid development of trading algos for multiple asset classes
Can you talk more about some of the algos strengths?
A key strength is that they’re model and data driven. The models were quantitatively derived from research involving intensive data analysis. The primary objective is to let the data speak. For example, given the critical importance of market impact to the quality of execution we developed a proprietary methodology to construct the unique market impact model for FX. When applied to the data, our model achieved great statistical significance. The nature of being model and data driven also enables us to build adaptive features into the logic so that the trading behaviors can be adjust in real-time to market conditions.
How do the algos make routing decisions?
Our algos make higher level macro-trading decisions in terms of the price and quantity they need to trade during a specific time period. The smart order router then turns that into the micro-trading decisions that determine the type of liquidity to interact with, venues to target and appropriate slice size. Both per currency pair historical research and real-time market data and trade information are inputs to our order placement models. Venue idiosyncrasies (i.e., minimum order size, minimum price/size increments etc.) are also a part every routing decision the SOR makes.
Rather than compete with the banks it makes sense to partner with them to provide a cost-effective solution that can be easily customized
How important is it for algos to make use of disclosed (bilateral) liquidity in addition to anonymous (ECN)?
In our view, having access to full-amount liquidity from quality providers improves the execution performance for algo clients. By quality providers we mean top-tier banks with tight spreads, small last-look windows and high rates of internalization. Including this liquidity reduces information leakage and, consequently, market impact. The sell-side algo order flow is viewed by banks as benign so gaining access to their top-tier RFS liquidity is a matter of relationships. Certain full-amount execution practices should still be maintained to not abuse these relationships. Monitoring the fill-to-reject ratio and the length of last look on a regular basis is important for having healthy conversations with banks aimed at improving the quality of liquidity.
BGC is a large multi-asset class brokerage operating across multiple financial markets. How strategically important is FX in the overall mix of products and services that the firms offer?
BGC specializes in delivering high-quality brokerage services and technology solutions for a broad range of financial products including foreign exchange, fixed income securities, interest rate swaps, equities, credit derivatives, commodities, futures and structured products. Given the size of the market and its importance in facilitating other asset classes, FX is naturally of high strategic importance.
Why does the scale and experience of BGC stand to benefit banks in terms of the level of support they can expect to receive?
We have the size and scope of the BGC’s support teams behind us from its various companies and shared services globally. Our FX Algo support team provides proactive customer service, live phone support and quick email responses from specialists with subject matter expertise. The main goal of this team is to provide regular communication and speedy resolution for all issues. This team also collects and collates detailed information on all client requests and issues for trend analysis and prioritization of future development.
You mentioned that you also support US Treasuries – Why do you consider your US Treasury Algo offering to be ground-breaking?
The US Treasury cash marketplace is highly fragmented and buy side institutions are often left without direct access to UST trading venues. As a result, they source liquidity primarily through sell-side RFQ systems or direct streaming channels that subject them to potentially large trading fees. The Precision UST algo suite provides all market participants with the ability to execute their orders directly on UST cash venues through high performance and easily customizable execution strategies and efficient post-trade workflow solutions. We believe our highly optimized and fully data-driven offering is an attractive alternative to the existing US Treasury trading options.
What are some of the advantages to using the Precision UST algo suite?
We provide sophisticated algos tailored specifically to UST market structure, along with traditional strategies such as TWAP, VWAP, SEEK, and Iceberg. We have proprietary, innovative market impact models derived from UST exchange market data with high statistical significance. These strategies are built using state of the art software development techniques with adaptive features that allow trading to be adjusted in real-time based on market conditions. Our algos are fully customizable, high performance algos that support the introduction of proprietary execution logic and customized liquidity access.
Through Fenics FX we provide a carefully managed and transparent ecosystem that delivers real, actionable liquidity to the marketplace at a low cost
A final word about this month, which of course sees the 20th anniversary of the 9/11 attacks. BGC has for many years held an enormously well supported annual Charity Day raising money for the Cantor Fitzgerald Relief Fund and other non-profits as a way to honor the victims of that terrible event. How can people wishing to make donations find out more about how to do that?
The Cantor Fitzgerald Relief Fund commemorates the 658 Cantor and 61 Eurobrokers employees whose lives were lost in the terrorist attacks of September 11, 2001 by holding our annual Charity Day, during which 100% of global revenues raised by Cantor Fitzgerald, BGC Partners, and GFI Group are distributed to the Cantor Fitzgerald Relief Fund and the charities it supports.
This year’s Charity Day has already taken place but those wishing to make donations can still do so at www.cantorrelief.org.
