Alan, 2021 was another record year for FSS in terms of volume and market share growth. Please can you summarise some of the key highlights for us?
2021 proved to be a tremendous year on all fronts for FSS. We celebrated our ten-year anniversary; we set several volume records, resulting in double digit growth YoY yet again; we were able to launch one of the biggest and most exciting products that I have been a part of – support for all the bank Algos over our API; and we continued to add team members to a dedicated team of professionals at FSS. In 2021 we saw a 13.48% increase in ADV over 2020, crossing the USD1trillion mark in terms of monthly volume 7 times compared to only once in prior years. Overall volume crossed the USD12trillion mark for the first time in the company’s history.
Reaching the ten-year milestone gave us a real opportunity to reflect on all the things we have achieved and how much we have grown, but it also put into perspective the work it takes to continue that growth. We are extremely excited about the next decade ahead.
What’s the approximate geographical split of your business and what types of clients are you now facing?
Our client base is spread across the globe. This was a key factor in adding dedicated sales and support teams in London and Tokyo as early as we did. We wanted the experience for our clients to be the same wherever they connected from. We support all of the clients our LPs are looking to price, including among others, banks, hedge funds, corporates, systematic funds, and brokers.
What range of instruments are available on your service and why does your fee structure help to ensure clients can expect better pricing of these?
FSS offers clients access to liquidity from the top 15 tier 1 Liquidity Providers, including Bank of America, Barclays, BNP Paribas, Citi, Commerzbank, Credit Suisse, Goldman Sachs, HSBC, J.P.Morgan, Morgan Stanley, MUFG, Societe Generale, Standard Chartered, State Street and UBS.
Clients pay nothing to access streaming prices from the 15 FSS LPs via a single API or GUI from sites in London, New York, and Tokyo, and can receive pricing in FX spot, forwards, swaps, NDF and NDS and Precious Metals spot and swaps. FSS also gives clients access to the entire algo suite of the FSS LPs. On the streaming side, LPs are charged a flat fee to trade an unlimited amount of volume, resulting in the LPs paying less on a per million basis as their volume grows; thus, clients can expect better pricing.
Wherever possible FSS looks to maximize the efficiency of the interactions between LPs and clients, with your team able to coordinate the majority of the onboarding work each time a client wants to add a new LP. What benefits does that deliver for both clients and LPs?
From a connectivity standpoint, the hard work has already been done, so for the client to add a new LP it is as simple as flicking a switch to have an LP turn on pricing. In addition, we pride ourselves is in the relationships we maintain between clients and LPs. We have a dedicated Relationship Management team that work tirelessly to identify opportunities for both parties involved and are able to pass these along to the relevant people as appropriate. In some respects, we see ourselves as the glue in between the parties enhancing and improving the relationship and experience versus slowing down what the parties need to get done.
Last year you launched functionality to support over your API all the FX Algos offered by the FSS LPs involving over 70 different Algos and 200+ parameters. Why is this such an important initiative and what factors influenced your decision to do it?
We noticed that market participants were looking for a more efficient way to do business with their banks when accessing the bank Algos. Algos has been a growing sector of the FX market and the pandemic only accelerated that growth. It was obvious to us that as with other parts of the market needing greater automation Algos was and is in such a need.
Several years before the pandemic we made the bold decision to write to all the Algo APIs of our LPs and to support all the Algos offered by our LPs. For clients to do what we have done – writing to 14 LPs to access all their Algos – would take a great deal of time, effort and money. Ultimately, for a client to do the work we did would not prove cost- or time-effective. By doing this ourselves we are able to offer all of the LPs’ Algos to of our clients, via a single API. We did the work because we can gain greater efficiencies for our LPs and clients given we operate at scale.
Your algo project must have been very technically challenging. What were some of the issues and complexities that you had to address to make it work?
Yes, it was a large and bold initiative. Writing to 14 LPs, all of their Algos and supporting over 200 plus parameters required a great deal of analysis to determine the best approach to have as common an interface as possible that we could give our clients. Though LPs have invested heavily in their interfaces, when you begin to peel back the layers, the differences in those offering 1st generation vs 2nd generation become clear. This did create some challenges along the way. However, we were clear from the start that it always made sense to normalize the entire offering and give access to the entire Algo suite of our LPs as opposed to trying to predict the needs of the client in terms of which Algos they prefer.
Ensuring that our clients receive pricing and can send orders in a timely manner is of critical importance
Why is FSS perfectly positioned to capitalise on the growing use of FX Algos and to support both client and bank journeys as their adoption increases?
Ultimately, as with our streaming offering, we have the depth of products and capabilities that means that any client can come to FSS and get what they need. We made the tough decision when starting the Algo project that we had to provide access to all the Algos in a normalized fashion. We knew that certain strategies would be more popular, and that certainly has been the case, but we never wanted to have to turn a client away because we could not support what they needed.
And the same goes for the banks. It did not make sense for the banks to invest so heavily in their Algo offering, only for us to turn around and cherry pick the ones we would provide to our client base. By supporting the entire Algo suite, something that only FSS offers over an API, we give the clients access to everything they could need and we give the banks the opportunity to provide their Algos to clients who may not have been able to access multiple bank’s Algos previously.
What response have you had so far from clients and LPs to your move to support Algos?
The response has been tremendous. To date, 25 Algos of the LPs have been accessed, all 14 LPs are live with their Algos and so far we have supported over USD16 billion of Algo volume over our API. The timing of the launch also played a part in the success of the offering. With the emergence of the pandemic, and the switch to working remotely, Algos provided a way to address the risk and compliance issues of the participants, while also providing deep liquidity pools and better execution. We are now in a position where we have a solid client base, accessing a number of different Algos from a variety of LPs.
As part of your algo initiative, FSS has added support for pre- and post-trade allocations, allowing clients to allocate orders sent from multiple accounts at the same time. In what ways will this widen the appeal of your offering to new client segments?
Adding a new product or feature to the Service when you are leading other industry providers and the market is always a tough decision. Once you establish that you believe there is a need for it, and the appropriate level of demand, you then have to consider the cost of the project and the expected return. Since we do not charge clients a fee, we look at our volumes and the resulting savings to our LPs as the gauge of our success. Ultimately, we felt that there would be a strong need from clients accessing bank Algos to have allocation functionality and did not want to risk losing clients as a result. The combination of the Algo functionality with the support for allocations appeals to hedge funds, asset managers, multinational corporations and regional banks.
FSS is vendor agnostic and has over 40 different vendor partners, specializing in multiple aspects of connection and order management. What advantages does that bring?
It would be difficult for FSS alone to provide every piece of functionality that each client needs. Their needs are so diverse and can differ not only between sectors, but even between clients within the same sectors. Our vendor partners allow us to focus on what we do best and do it extremely well. Plus, we believe being open to the vendor community to access FSS and the FSS LPs helps everyone in the end. Additionally, we have a number of clients that came to us as a recommendation from their current vendor, so the benefit of maintaining strong relationships with these vendor providers works both ways.
You have been working to implement a new low-latency architecture at FSS. What are your objectives in doing this and what benefits will the targets you have set yourselves deliver?
We have grown tremendously since our launch in 2011 becoming the 3rd largest FX Service by volume and the largest fully disclosed streaming Service. At the same time, we have placed great importance on the speed and quality of our market data distribution. Our aim is to provide our clients plus liquidity providers the best-in-class infrastructure and prioritize the performance and reliability of the Service in the same way as our deep product offering. Ensuring that our clients receive pricing and can send orders in a timely manner is of critical importance.
Once fully rolled out, market data processing times under all market conditions are targeted to not exceed a maximum of 250 microseconds. Additionally, the new architecture will provide scalability to allow us to maintain the same performance levels as we continue to grow. The project is well underway with the physical migration of all our LPs in NY nearly complete and London in process. We expect to have our first clients accessing the new architecture at the end of Q2/early Q3.
We were clear from the start that it always made sense to give access to the entire Algo suite of our LPs
You have said in the past that client strategies should never be limited by the technology they use and that you don’t want them to compromise because they use FSS. Are there limits to what you can deliver on this or is your intention that clients should ultimately be able to do all their trading business via your Service?
Our goal is to become the FX destination of choice for the market and support as many of the needs of clients and LPs as possible. Of course, that takes time. But the history of FSS demonstrates that we are methodical operators and focus on delivering solutions.
We started in 2011 with one product out of our NY – FX, Spot, Streaming over an API. Today we support in NY, London and Tokyo over our API and our GUI, FX spot, swaps, forwards, NDFs, NDS, Precious Metals spot and swaps with various order types and the entire Algo suite of our LPs over the API as well as support for pre and post trade allocations.
As we look forward to the next decade, we remain very bullish about our business. We have already seen tremendous growth YoY in 2022, setting new highs in terms of ADV in February (USD63.1 billion), and then again in March (USD70.1 billion); April marked 12 consecutive months of positive YoY ADV growth, with a 26% increase over April 2021; we continue to see algo volumes grow as new clients are onboarded; and we have an extremely strong pipeline of clients looking to connect to our Service.
FSS continues to win many industry awards. How much has the culture of the business and the team of professionals you have managed to attract contributed to achieving these?
We firmly believe in our Service and we are the product of our strong and dedicated global team. Industry awards of course give us the opportunity to show the backing of established and respected publications and organizations. It is the chance to say, “We know we have an excellent offering, an unrivalled level of client service and are extremely motivated in what we do, but now this group of industry professionals agrees.”
But we like to let our offering and the best support organization in the industry do the talking. Our team across all functions puts in a great deal of work, day in and day out, and they are the first ones I thank when we are presented with one of these awards. We operate at the highest level possible to deliver the best Service to our clients and LPs so it’s certainly rewarding when the market recognizes what we do.
What work will you be doing to roll out new products over the coming months and to find ways to improve your service still further?
We are extremely excited for the upcoming launch of our new Algo GUI. The team has put a great deal of time and effort in to designing and building this GUI and we believe that it is really going to add to the Algo offering. With the complexity of normalizing 14 different LPs’ interfaces, we feel that the GUI is the final piece of the equation and will offer the same levels of customization as our API, in an easy to use, convenient tool. We expect the GUI to be launched later in Q2.
Which parts of the world are you currently focusing your attention on as you gear up for the next round of business growth?
Despite our past growth, we see continued opportunities in many of the same regions. We continue to onboard clients at a fast pace in the Americas, APAC and EMEA. The UK, US, Australia, Singapore, Japan remain active for us and a source of new business. Plus, we continue do more business with existing clients in those regions who are expanding their business over our Service.
As the world reopens following the pandemic, and mandates surrounding travel continue to be lifted, we are eager to shake hands and get back to the numerous in- person conversations that were, rightfully, put on hold. FX is a relationship driven market and those relationships are hard to build through a screen or via email. With the return of conferences and in-person meetings, I am energized at the prospect of getting back to business as usual.
In December 2021 FSS celebrated its 10-year anniversary. What advice would you give to anyone setting out today to try and transform the FX marketplace as much as FSS has over the past decade?
The growth story of FXSpotStream in the last 10 years has been meteoric. It serves as a constant reminder that what we are doing is extremely valuable to our liquidity providers, our clients and the FX market. Despite our growth, I still view ourselves as a “start-up” and that’s how I run this business every day. We are about identifying an issue and finding solutions, getting things done and moving the ball forward. My advice to anyone looking to do what we have done, or for that matter start a business, is that the most important element to success is hard work, focus and drive. It is absolutely not easy, but if anyone is willing to devote the effort and do so consistently it can absolutely be done.
“Our goal is to become the FX destination of choice for the market and support as many of the needs of clients and LPS as possible”
Alan Schwarz
