Roger Rutherford
Roger Rutherford

ParFX - Bringing increased fairness, equality and transparency to the FX market

Since ParFX’s inception in 2013, the company has been at the forefront of efforts to bring about change to the industry. It played a role in the development of the FX Global Code through its participation in ACI’s foreign exchange committee and was one of the first to sign up. e-Forex spoke to Roger Rutherford, Chief Operating Officer at ParFX, to discover more about the unique aspects of the platform and business model, and the steps it will be taking to continue its mission of improving trading behaviour in the FX market.

Roger, what were the guiding principles that led to the conception and launch of ParFX?

ParFX was founded by a large group of FX market participants who had become frustrated at the deteriorating trading environment and rise in disruptive behaviour in spot FX. These institutions wanted to reintroduce a fair, equal and transparent trading environment that was lacking on incumbent platforms.

The platform is underpinned by four key pillars that support and promote transparent, responsible trading behaviour: a meaningful randomised matching methodology, a transparent post-trade environment, distribution of market data in parallel at no extra cost, and a flat and clear fee structure with no special discounts.

These pillars have helped create an environment where participants trade with each other in a fair, effective and transparent manner. All firms, regardless of size, technological sophistication, financial clout or volumes traded, are treated equally and play by the same rules.

All firms, regardless of size, technological sophistication, financial clout or volumes traded, are treated equally and play by the same rules on our platform
All firms, regardless of size, technological sophistication, financial clout or volumes traded, are treated equally and play by the same rules on our platform

What types of FX market participants can utilise your services?

We welcome any professional trading institution that can operate according to our principles of fairness, equality and transparency and which favour responsible trading behaviour over speed-based strategies.

The trading environment we have created continues to attract a mix of participants. This includes institutions with a global FX franchise, as well as smaller banks with a regional focus.

Equally, a key part of our offering is ParFX Prime, which opened the platform to a range of prime clients. ParFX Prime is unique in delivering full trade transparency, with the executing broker, prime bank and prime client all required to give up their names post-trade.

This enhances transparency and responsible trading behaviour. The result is a market of genuine interest, reliable price discovery and firm liquidity, where counterparties know who they are trading with and on what basis.

How have you gone about bringing new innovation and technology into the way your platform has been engineered?

While our founding principles of fairness, equality and transparency haven’t changed since our inception, we have developed and introduced new features which meet the demands of our customers and align with these principles.

Key to this was our re-platforming to C++. This has enabled us to make numerous improvements, including increasing the pulse of our market data updates from 10 milliseconds to five milliseconds. Importantly, we continue to provide market data at no extra cost; this is in direct contrast to some of our competitors.

The re-platforming also enabled us to explore the feasibility of executing smaller trade sizes and adding new currency pairs to cater to the variety of trading institutions, as well as smaller prime clients.

These new features are in line with our ongoing objective of offering greater value to our customers at no extra cost, and without causing disruption to their trading operations.
Beyond that, we are exploring opportunities to add further customer value by partnering with other market participants and technology providers. This includes a proof-of-concept with a post-trade technology vendor to explore how distributed ledger technology can be integrated within ParFX to enhance the credit management process.

We continue to provide market data at no extra cost; this is in direct contrast to some of our competitors
We continue to provide market data at no extra cost; this is in direct contrast to some of our competitors

What do you see as the key benefits of your platform and why it has proved so attractive?

What differentiates us from every other spot FX platform is our unrelenting focus on transparency, fairness and equality. ParFX is entering its seventh year of business, and the vision and model set out at launch remains future-proofed. The principles on which ParFX was designed have never been more relevant than today, particularly in light of the FX Global Code.

Firm liquidity and reliable price discovery are central to the ParFX offering. We offer a multitude of solutions to enable this, including no last look and the eradication of disruptive trading behaviour through the market’s only meaningful randomised matching methodology.

These prevent disruptive trading behaviour, and align strongly with the FX Global Code’s principles, enabling participants to trade confidently.

Please tell us a little about your unique randomised matching methodology and the advantages this delivers?

Over the past decade, there has been a dramatic rise in speed-based trading, resulting in an unfair playing field and a deterioration in execution quality. This remains a source of immense frustration.  In response, ParFX pioneered the use of randomised matching, replacing the concentration on speed with a focus on intelligence and strategy.

Our pause is the only one that is meaningful enough to nullify disruptive traders whose strategy relies solely on speed, but meaningless to those that have a genuine trading need, seek firm, executable liquidity and compete on strategy.

True, meaningful randomisation happens at an order entry level and applies to all trading elements, including submissions, amendments and cancellations. This approach has proven itself to prevent practices such as rapid order submission and cancellation with the sole purpose of moving the market.

Integration of a new platform with existing legacy systems can be a major headache for FX trading firms. How have you overcome these issues?

The cost of connectivity and high, set-up costs can be a significant barrier to entry, and minimising IT and connectivity costs is key to our offering. To enables seamless integration with existing systems, we have adopted an industry standard FIX API.

Our matching engine also operates from a single connection point, in London, which simplifies integration costs. We have also made a concerted effort to ensure we operate a customer-focused on-boarding process that is speedy and free from unnecessary complexities. This includes alignment with independent service providers whose technology is integrated into the trading ecosystem of our customers.

What connectivity options to your platform are available and how have you designed these to reduce costs and lower entry barriers?

ParFX has one connection point, in London, which reduces costs and prevents anyone from exploiting multiple connection points to gain a latency advantage.

Our pricing strategy is simple and transparent. Everyone pays a monthly connection fee; this includes market data, which is same data for everyone and is delivered at the same frequency in parallel. Nobody can buy an additional data package to gain an advantage. This is one of the key tenets of our platform.

ParFX was one of the first trading platforms to commit to the FX Global Code. What work still needs to be done to fully transform the FX market and encourage more firms to engage in good trading behaviour, and what role can ParFX play in this?

There has been good progress made in terms of adoption, with 800+ participants now signed up to the Code. From our experience, we have seen greater levels of debate and discussion about the Code’s application. There has also been an uptick in interest from prospective clients, as our trading model aligns strongly with the Code’s principles.

The working groups focusing on disclosures and cover and deal have released their reports. It’s good to see these findings but it will be even better to see them implemented across the market. In order for this to happen, leaders at individual institutions need to take the initiative. If all the institutions that have signed up to the Code encourage their customers to follow suit, we will see widespread-changes in trading practices, conduct and genuine transparency across the market.

What are the key trends you expect to see in 2019?

I think the overarching trend for this year is market participants extracting as much value as possible for their trading operations, and making their voices heard on issues which affect them, particularly around transparency and costs.

This debate has been brought into focus with the introduction of the FX Global Code which has helped create an environment where people are encouraged to adopt best practices, and voice their concerns when they feel their counterparties, brokers, data vendors or technology providers are falling short. A prime example of this is the very public frustration with the lack of transparency around market data packages and unfair distribution models.

In the equities market, some institutions have gone a step further and created their own exchange, MEMX. In FX, some large non-bank investors have threatened to trade directly with each other because of concerns around the misuse of their trading information by dealers.

The FX market needs to pay heed to its customers’ concerns, and be more transparent in all aspects of its trading practices. Better communication will kick start conversations around transparency and behaviour, play a crucial role in providing clarity to clients and eradicate any notion of misbehaviour taking place. This is crucial for maintaining an efficient and effective global FX market.