Brad, looking back to when you first started in this business, in what ways has it become more costly to be in the FX market today, and how much commitment and investment does it take to compete as a top-level service provider?
Historically, the FX dealer space had a one-stop shop approach with a generalized offering. The advent of electronic trading changed that model and the surge in algorithmic trading has further driven this change. Banks have generally had to commit to a significant investment in electronic/algorithmic trading or focus on basic sales and trading. Building an electronic trading platform is a significant time and business expense, but there is a space for firms that make the investment or form the right partnerships. As a result, alternative liquidity providers have been successful.
We have committed to this investment and built out the infrastructure necessary to have a world class offering, whether as a principal market maker or through our Jefferies ATS algorithmic trading platform. As a new entrant on the field with a flexible technology partner, we can innovate and progress at a very rapid rate relative to the competition.
How has Jefferies been building up its FX capabilities with new hires over the past few months?
We have made a number of new hires on the team in recent months, from liquidity management to electronic distribution, voice sales/trading and prime brokerage. We now have a very experienced team from a wide variety of backgrounds including tier 1 institutions, alternative liquidity providers, ECNs and elsewhere. Jefferies is extremely excited about our current team and believe we are well-positioned for future growth. Also, although we are an experienced team, we are a relatively new entrant in the electronic FX space and capitalized on our opportunity to build from scratch with the latest technology offerings. We operate a very lean team, allowing us to price competitively on our platforms, very much embracing the new mode of how electronic market making and liquidity provisioning in FX will operate in the years to come.
How are you trying to differentiate yourselves from your competitors and other leading global FX providers?
One of the core principles at Jefferies is “Clients First – Always.” Everything we do is focused on the client experience, whether we interact electronically or through voice. For our algorithmic trading solution, Jefferies ATS, we are the first to offer our clients access to 100% primary source liquidity, conflict-free, without Jefferies liquidity co-mingled. Additionally, our FX prime brokerage team addresses a significant credit gap in the market, which affords our principal market-making desk an opportunity to engage with truly unique sources of liquidity. Finally, our sales-traders provide many years of experience to help partner with clients on harder-to-manage executions.
Jefferies has excelled at picking its spots and then doing them well. We won’t be all things to all clients, but we will be very good in the areas where we think we can add value—this is what will continue to differentiate us both as a firm and a successful FX platform.
Why is Jefferies so committed to addressing the credit gap in FX prime brokerage and how have you stepped up your expansion into this space?
Credit is a Top 3 factor in how clients choose between institutions that provide strategic value and those that simply provide a tactical solution. We view the credit gap as a critical battle front. In the past 20 months, we focused on making our processes more efficient while improving the client experience. This new efficiency allows us to provide more competitive rates to our clients. We invested heavily in our front and back office technology, allowing us to process millions of trades per day while displaying these trades in real time through our improved client portal. We have expanded our instrument list with the addition of spot gold and spot silver, and we aim to add On-SEF NDFs this year. We expect to continue opportunistically adding to our team to support our growing business and maintain our “Clients First – Always” approach.
We are thrilled with our progress but even more thrilled with several updates we will have this year, all of which are aimed to capture additional market share.
How important are your digital capabilities to your overall FX service offering and what types of client are you now catering for via e-channels?
Electronic trading and specifically algorithmic trading are a cornerstone of our offering. We have spent a significant amount of time and resources developing our products. We differentiate ourselves by not only focusing on developing world class algos but also on customizing the liquidity behind those algos. On the liquidity side, we feel we have an edge as we focus on providing clients a best in class algorithmic channel to primary source(s) of liquidity, conflict free. Liquidity management is just as crucial as the algorithms themselves, something which is often overlooked. Wrap a very strong real-time TCA offering and premier post trade evaluation product around it and you can see why customer satisfaction is so high.
Our product appeals to clients involved in the FX algo space and traders looking to access primary source(s) of liquidity. We also act as a market-maker on a principal basis electronically and connect to our clients in a myriad of ways in this regard. Hedge funds and asset managers looking for comprehensive transaction cost analysis or post and pre-trade analytics will find real and tangible value in our offering.
In what ways have you been strengthening your FX platform and e-commerce services and working to add more functionality and value for clients who are using them?
As a newer entrant into the e-FX space we were able to take a fresh look at the landscape and focus our efforts into developing the tools clients need to interact with adequate liquidity. The goal is to maximize the liquidity consumed while minimizing signaling.
When trading algorithmically, a client’s primary input is timing and urgency, i.e. when do they want to trade and how quickly do they want to execute? Our goal is to provide functionality to achieve this objective in the best way possible, but also to keep it simple. We don’t want our algos to be overly complicated, we want them to be easy to understand and to use. We spend a lot of time ensuring that our algos are understandable and our clients can engage with a complicated market micro structure in an effective and low-signaling way.
How have you gone about making it easier for clients to integrate your FX and e-FX systems into their existing workflows and how difficult a task has that been?
There are many ways for clients to access liquidity today and it’s up to us to make sure we are present where they want us to be. We have a standalone trading system for our algo product but have also integrated to Bloomberg and FX Connect as well. Our streaming products are available in many venues around the street including many third-party technology intermediaries. Wherever clients want us to be, we will be; we are a small team and can innovate and integrate very rapidly.
What drives the on-going development of your digital strategy and the evolution of your FX e-commerce services? Is it, for example, client demand or competitive pressures?
I mentioned our “Clients First – Always” approach to business at Jefferies, and It applies to our FX business as well. Everything we do is designed to provide our clients with the best ideas and execution. Our technology team is quick to innovate as needed. Competitive pressures are great, and that can help drive innovation as well but client satisfaction is our key driver.
We are also consistently striving to improve our liquidity sources. Active liquidity management is essential to having the best possible experience when executing algorithmically and we dedicate a lot of time and effort to developing those partnerships as well.
Improved price discovery is a key reason for utilizing electronic channels in FX. How does the value proposition of your own e-FX services go beyond that?
Using the right electronic trading tools or algorithmic trading strategies can massively improve transparency in the market place. Executing against liquidity and understandable venues and seeing the progress of your order in real-time provides a level of transparency that is hard to compare. The Jefferies ATS algo solution has these tools and more. Our approach is one of complete transparency, we intentionally leave our price out of the customer experience unless specifically requested so clients can execute in the same venues that tier 1 banks use when hedging their own internal flow.
Clients trading with us not only get price discovery but they know the venue traded, time stamped with full analytics around execution price relative to mid, VWAP average, arrival mid and a host of other metrics. We also provide visibility on where client orders were relative to top of book in each of the venues interacted with along with a post trade analytics suite that allows for microscopic analysis tick by tick within the market micro-structure. Our real time charting tool allows clients to analyze signaling in real time and they can adjust execution speed and urgency level on-the-fly to mitigate market impact.
How are the relationships between major FX providers like Jefferies and their clients changing and being influenced by the arrival of new regulations and moves towards more transparency in the market?
Regulation is helping to drive the demand for algorithmic trading solutions as well as the need for greater transparency. Clients need to be able to understand how the algorithms are interacting with the liquidity, as well as the liquidity source itself and the ability to measure for market impact, final price vs. expected price and a host of other metrics. By providing these tools and more, as well as complete transparency on the liquidity behind every trade, we provide a level of granularity that should satisfy regulatory needs in the current environment.
Many buyside firms are reacting to new regulatory requirements by seeking better execution analytics, access to a wider variety of liquidity sources and execution algos. How much demand for the use of algorithmic trading toolsets and associated TCA solutions are you seeing amongst your own clients and how are you meeting this?
The demand for algorithmic trading solutions is increasing at a rapid rate. Some customers want control over the execution as the algo is running, while others prefer to let the algo manage the bulk of the execution for them. We design our algos to solve for both requirements. Liquidity is just as important as the algos interacting with it and we dedicate as much time to liquidity management as we do to algo development. Clients increasingly want access to primary source or unique sources of alternative liquidity and it’s our role to help facilitate that. Our robust real-time TCA offering is unlike anything available elsewhere on the Street, but we recognize the importance of third party TCA providers as well and have been working with them to ensure our algos are performing as well as we think they are. The demand in this area is only going to increase and we are at the forefront.
In what ways do your e-FX offerings complement your voice trading services, and do you think further electronification in FX may eventually spell the end of so called hybrid dealing?
There is a time and place for an experienced market professional with many years of trading experience to partner with clients on a traditional voice basis to manage executions. Currencies are one particular security for which liquidity can be challenging. Additionally, in times of market disruption when liquidity is unavailable it is helpful to have a dependable partner. We have a team of very experienced execution traders specializing in all currency products and markets to help when an electronic platform is not viable.
Looking ahead over the next few years what plans does Jefferies have for growing your global FX footprint around the world even further and what role can your e-FX services help to facilitate that?
Our current FX platform is relatively new, and we have spent several years getting the products and the infrastructure to where we need it to be. 2019 will be a year of growth for our business, starting in North America and Europe and eventually into Asia as our platform develops. While we provide services in all major FX products both from a voice and an electronic perspective, we really lead with electronic trading capabilities as price maker and as algorithmic trading service provider through our Jefferies ATS platform. Our goal is to continue to develop deep partnerships with our clients and provide high quality value-added service for all their execution and clearing needs. We feel this is a model on which we can build for many years to come.