Why has this strategic collaboration arrived at a very opportune moment for DMALINK?
DMALINK, since its inception, has been searching for innovative FX solutions outside status quo. We’ve adopted a different pricing model by not charging LPs, a different approach to clients and LPs alike, yielding long-lasting relationships. Commerzbank is regarded as one of the most established German banks, a highly regulated, in a fast-paced and functioning environment where the ‘entrepreneurial’ spirit is alive and well. Many large banks write about innovation, digitization and the likes, hiring teams that end up dissolving in a matter of months due to lack of direction, albeit, enormous budgets spent on the endeavour. What we see in Commerzbank being an organisation that is not afraid to take the lead and press forward with the evolving global financial market. Recent press announcements made by Commerzbank signify a huge shift in the direction of the digital asset industry and bank involvement. On a related note, DMALINK has launched its own digital asset venue which is catering to large, regulated, FIs. This to us, signifies a large move in the market towards institutional adoption of digital assets and digital asset trading.
What sort of criteria do you look at before you invite a market maker to join your ecosystem?
Great question. The criteria are dictated by the clients who use our venue for their trade execution, settlement and post-trade execution analysis. Different clients have differing types of flow, whereas many banks will be directional, as will be the pension funds, it is likely that hedge fund clients will be taking a different view to the market. This means, we must have a diversity of liquidity on the platform. We look at the currencies most traded on the platform, and find LPs which excel in that space. From there, we’ll look at the sizes they are comfortable with and match that to the sizes we see going through our systems in LD and NY. Then, we must look at the timeframes with which the banks work when internalising positions and compare that to the data we see coming from the client’s data pool to see whether that matches. Lastly, our team play a pivotal role here in matching the data, the sizes, the currencies, to the appropriate LPs. From there, we start a 4–6-week process of a collaborative approach between us, the client and the LP whereby we have weekly calls to assess the performance on both sides of the equation. During this time, we often make adjustments driven by the data, our sales and data teams will jointly speak with the LPs and clients to better understand the flow and pricing and make changes. I wish I could say it’s an easier process but, it takes time and effort to create a working ecosystem, especially, in a market where flow and pricing alike changes from time to time.
How will the addition of Commerzbank help you to meet your core FX liquidity objectives?
We see a significant demand in CEE currencies aside the G5 that’s market-dominant in terms of volume. Our clients see value in trading these pairs given there’s a larger potential for profit as margins are still larger than those of the G5. We were looking forward to working with the FX desk and the broader Commerzbank team to ensure we can provide our clients with great pricing, allowing them to trade more by driving more strategies towards these pairs. Commerzbank has a huge franchise business of corporates and retail clients whereby both can lean heavily on their FX expertise, from local businesses to large multinationals.
Amidst its expanding asset classes, DMALINK remains dedicated to embedding FX within its electronic trading platforms. Why is that and what makes your ECN model increasingly attractive for many trading firms?
DMALINK is uniquely positioned within the FX space by delivering multiple touchpoints to our clients. As we entered the digital asset space, we understand that Deliverable FX, settled in a timely manner is still a pain point for many firms. Given our market-wide connectivity to many bank and non-bank LPs we can provide wholesale prices to the digital asset space with same-day delivery (T+0) on large orders. This gives LPs access to flow based on client transactions as opposed to trading strategies.
A major theme throughout this edition of e-Forex is the importance of putting data at the heart of FICC business strategy. DMALINK is well known as a data-centric ECN. What does that mean in practice and what benefits does it deliver for clients?
Absolutely right, we’ve done away with manually intense processes in favour of machine learning and AI-driven liquidity management to help us make much faster decisions on the ever-changing structure of the flow and how it interacts with our LPs. This enables us to react far quicker than previously possible, and, helps us maximize the LP yield while minimizing the market impact.
This month we are also exploring the move to T+1 Settlement later this year and the potential impact this will have on FX. What are your own thoughts about?
Improving settlement-times in FX is critical from a capital allocation and credit perspective. It further reduces counterparty risk considerations.
We currently provide T+0 settlement when clients buy or sell fiat currencies against crypto currency such as Bitcoin, Stable Coins or Ethereum. This type of bridge between TradFi and DeFi enables clients prompt access to capital and reduces the burden of overallocation of credit.
What plans do you have this year for enhancing DMALINK’s and Definity’s product offering further and growing its business footprint globally?
As DMALINK continues to grow organically, we dive deeper into solving the intricate issues found in the digital asset space by listening to the regulated institutions we all know from the world of FX.
One of the projects we launched recently is our Deliverable T+0 FX for DeFi. This is a move driven by client demand and necessity as the market continues to struggle with the FX component of the transactions, simultaneously as the market matures and expects things to be done at a much quicker rate. Fiat on/off continues to be a struggle for many companies.
Applying institutional FX methods from a pre and post trade perspective and considering counterparty risk metrics, and settlement and PB credit intermediation systems we are currently introducing new trading and operational efficiencies into the digital assets landscape to make crypto trading faster, cost efficient, secure and stable.