Jay, FX HedgePool is the first company to really make inroads in the peer-to-peer space. What is your origin story?
Oh man, where do I begin? I suppose it comes down to doing the right thing for the end investor. I’ve spent my career working for banks building products for buy-side clients and I’ve always had a sense of obligation to build solutions that deliver the best results. I dug into the accounting methodologies of my clients’ funds to fully understand the performance drivers. I built performance attribution models to explain every last fraction of a basis point of slippage. I even designed TCA reporting in Excel spreadsheets before the financial crisis when TCA wasn’t even a thing. Optimizing performance and reducing costs has always been my motivation. My background serving both the buy- and sell-side gave me a unique perspective on how it all fits together, but when I met Emin and saw first-hand how powerful and nimble modern technology has become, I knew we could build something special.
Our journey started by tackling the growing demand for peer-to-peer trading – and has only just begun.
You launched with a Peer-to-Peer Swaps Matching platform. Why was this your first endeavour?
Our initial focus was on FX swaps matching, the product we branded X•Match:Swap. We knew the space and that there were firms all over the world running passive hedging mandates with routine trades that were consistent, reliable and most importantly, offsetting.
FX swaps account for about half of the FX market, yet the vast majority of swaps trading is done on an opaque, bilateral basis, constrained by broker restrictions.
While we knew where to find the offsetting positions, the biggest hurdle for us to clear was the fact that these firms can’t trade with each other. Pension funds, asset managers, mutual funds, corporations – just to name a few – rely on their bank partners to provide them with bundled credit and execution services to transact their FX business – a market structure dependence that’s been in place since the dawn of FX.
Of course, over the past 30 years the electronification of FX has brought important efficiencies to the industry, but the actual market structure has essentially remained unchanged. Until now.
“We are redefining the roles of the buy- and sell-side by finally breaking the chain between liquidity and credit – allowing liquidity to flow freely for all.“Jay Moore
Why now and what has FX HedgePool done differently?
The market is starving for innovation and traders are being measured against higher standards of best execution. At the same time, growing volumes, increased volatility and regulatory capital pressures are forcing some banks to reconsider the risk and cost of trading FX swaps – leading to liquidity concentration and higher costs for all involved.
We are redefining the roles of the buy- and sell-side by finally breaking the chain between liquidity and credit – allowing liquidity to flow freely for all, including peers, for the first time.
To make this possible, we’ve created a credit marketplace where banks provide credit to our members community in exchange for fixed fees to appropriately compensate for balance sheet usage. By leveraging existing ISDAs and operational infrastructure with their strategic bank relationships, our member are able to utilize available credit lines for the booking and settlement of trades sourced from other FX HedgePool members.
This credit marketplace turned out to be the enabler for everything we do – setting the stage for the next generation of electronification of FX.
It sounds like the banks have become an unlikely ally for the peer-to-peer model. What’s motivating them?
In some ways our most welcome surprise has been the interest from the banks and their willingness to embrace FX HedgePool as a trusted partner. We now have a dozen of the world’s largest banks who are signed on as credit sponsors and the list of interested banks continues to grow.
The credit marketplace introduces a novel way for participating banks to access a new source of passive, reliable and transparent FX revenues without bearing market risk.
While initially conceived as a necessary development to support the matching of swaps between buy-side firms, our transformative credit marketplace opens significant potential to reconsider many aspects of FX trading.
Through close collaboration and the insights gained from our network of banks, we’re incredibly excited about several other use cases for this unique credit model that will allow them to further scale their FX franchises at higher margins, while enhancing their ability to support their strategic client base.
Building a business from the ground up requires the talent of many. You’ve made several key hires recently. Tell us about the leadership team you’ve assembled.
In addition to the insanely talented team we already have on board, we most recently hired Townsend Smith as CFO and Karen Phillips as Head of Business Development.
I worked closely with Townsend for nearly eight years at BBH and always admired his approach to solving complex problems. If you can get an idea past this guy, you’ve won the day. He challenges everyone and pushes. Everyone needs a Townsend.
Karen Phillips has been a total game changer for us as well. She’s spent 20 years building FXall from the ground up and helped turn it into the highly respected platform that it is today. She brings both start-up experience and a successful and disciplined track record of platform/solution sales. I have no doubt she will take things to the next level.
Our team and our culture is absolutely everything. From our dedicated sales team, to the incredible tech team, to having a talented creative team on board from day one – we’ve been incredibly lucky for a start-up. We’re small, but mighty. I respect every single person on the team immensely and try to create an environment where everyone feels ownership in the company.
We’re dedicated to creating conditions that foster and reward innovation, not least because it drives growth. We encourage new ideas and experimentation and perhaps most importantly, we accept failures on the way to meaningful breakthroughs.
You mentioned things like best execution, transparency, efficiency – is there an element of good governance that comes into play?
Absolutely. The peer-to-peer matching model that we’ve developed transforms the concept of best execution by eliminating market impact, removing spread uncertainty and reducing operational risk.
According to an analysis we performed using BestX Expected Cost data, buy-side traders can see cost reductions up to 75% with 90% fewer negotiated transactions – saving time and money.
These savings ultimately filter down to everyone, personally, through things like pension and investment performance – putting good governance at the center of everything we do.
We want to be leaders in the next generation of FX. With that comes a new level of responsibility. To that end, we’re currently going through the process of ensuring compliance with the tenants advanced by the FX Global Code and will issue our statement of commitment early this year, affirming that we are dedicated to acting in a manner consistent with the principles of the Code. Not just on paper, but in practice.
“Buy-side traders can see cost reductions up to 75% with 90% fewer negotiated transactions.“Emin Tatosian
Emin, what role does technology play in the firm?
As a fintech, technology is central to everything we do. With a CTO as co-founder, technology was baked into the company’s DNA from day one and made it a core team competency. Indeed, while crafting our mission statement: to modernize institutional FX through bold innovation and leading-edge technology for the betterment of all – it became clear to me that we’d need a world-class technology practice and platform to realize our audacious vision.
To date, our in-house technology team has spent thousands of hours collaborating with internal and client domain experts to build the world’s leading all-to-all matching platform. After countless micro-decisions and engineering hours, our technology today matches billions of dollars for a community of global asset managers, pension funds, corporates, and banks. Seeing participants realize efficiencies unique to our platform that deliver meaningful benefits to their end investors is immensely fulfilling.
With finance and technology backgrounds, Jay and I recognize the powerful interplay between the two specializations. Furthermore, we know that challenging the status quo and effecting market structure change of such magnitude requires the combined talent and energy of a team. This outlook continues to set the tone for an environment that attracts and allows an unrivaled group of experts to do their best work.
The technology team specifically comprises a diverse group of professionals who’ve worked tirelessly for four years to craft our multi-award-winning platform. With thousands of lines of proprietary code, dozens of modern technology building blocks, and agile development practices – our team can produce an average of 30 meaningful upgrades each year. This blistering pace is an order of magnitude quicker than most other industry participants, ensuring that we continue innovating for our community.
An example of our multi-million dollar commitment to technology is evident from a recent major upgrade to the platform. Having learned many lessons and captured invaluable feedback from our community since the platform went live three years ago, we felt the time was right for a rethink. While the original system successfully facilitated over $4.5 trillion in matched flow since 2020, the upgrade sets a new benchmark for fintech technology. This new architecture, built with best-in-class technologies, will serve as the springboard for our multi-product strategy in 2023 and beyond.
What is the product strategy for 2023?
Our roadmap for this year is as exciting as it is ambitious.
We continue to take feedback from our growing community to drive enhancements and features for X•Match:Swap. We’re introducing more matching events, further integration and automation for both buy- and sell-side participants and several other workflow enhancements to simplify the matching process.
With nearly four years of development under our belts, we have a sophisticated technology foundation integrated with industry-leading OMS providers – an accomplishment that few others have achieved.
We’re extending the product suite to include X•Match:Spot Fix, which is a netting and workflow automation solution for benchmark fixings. Fixings are a natural extension of our core strategy to optimize passive trade orders and provide fair and transparent solutions for otherwise distracting and operationally risky transactions.The credit model lends itself to a number of exciting products that will help our members maximize netting, optimize liquidity and automate counterparty allocations. At the same time, we’re working with the sell-side on leveraging the credit model to create capacity and boost revenues while reducing costs and avoiding unnecessary market risk.
Additionally, last month we launched the Innovation Pool working group, where a select group of peer-nominated senior traders will help propel the industry forward by tackling its major challenges. The Innovation Pool is about bringing together a group of strategic thinkers – peers at the top of the industry – to rapidly progress ideas to working solutions.
This is another way we hope to help the industry evolve. We want to address pain points and solve real problems – together. It takes a community. We’re truly honoured and grateful to have the opportunity to bring such an impressive and respected group of leaders together and can’t wait to see what we can co-create.
These innovations and product investments were made possible by the boost that came about from our recent Series A capital raise. The round was led by Information Venture Partners (IVP), with participation from Fidelity International Strategic Ventures (FISV) and NAventures (the venture arm of National Bank of Canada). These new alliances bring a diverse range of strategic perspectives to the table and have unsurprisingly created a huge amount of momentum for the business – and we couldn’t be happier with how it’s all working out.
With this funding and our new strategic partnerships, we’ve invested in an all-star team that’s laser focused on accelerating the growth of the business and we’re well placed to execute quickly on our 2023 product strategy.