24/7/365.

Those are the trading hours of the $5.3 trillion a day foreign exchange markets, as measured by the Bank of International Settlements. And for such a market, the buy- and sell-side need every advantage and piece of technology they can get their hands on. Traders Magazine recently caught up with Dan Marcus, Chief Executive Officer of ParFX, who discussed how his firm fits into this unique ecosystem – how it is helping shape the FX Global Code of Conduct and ParFX’s technology designed to make trading more efficient and fair.

Traders Magazine: Please tell us about your firm and business?

Dan Marcus: ParFX is a wholesale electronic spot FX trading platform, wholly owned by Tradition and supported by a large diverse group of FX market participants. It was launched amidst frustrations at the deteriorating trading environment and rise in disruptive behavior.

Some counterparties realized they could engage in a range of questionable trading practices in order to gain an advantage. This was often driven by speed-based, low-latency strategies with no care about the impact or consequences for the wider market.

ParFX is underpinned by four key pillars that support an equal and transparent trading environment that promotes responsible trading behaviour. These include 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 a trading 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.

Our vision and model set out at launch remained future proofed in many ways. We were one of the fastest growing platforms in spot FX, and the principles on which ParFX was designed have never been more relevant today, particularly in light of the FX Global Code.

A series of platform upgrades, product enhancements and expansion plans mean ParFX will continue to build on its success in 2019. This includes the distribution of faster market data for our customers at no extra cost, exploration of DLT for credit management, the ability to execute smaller trade sizes and expansion to regions and currencies where our customers and prospects believe disproportionate levels of disruptive trading behavior occurs.

TM: ParFX has been engaged in formulating and commenting on the FX Global Code of Conduct. Can you provide us with an update on the Code and the priority areas such as “cover and deal” trading activity, disclosures, buy-side outreach, and integration of the Code in the FX market?

Marcus: ParFX was one of the first to sign up to the FX Global Code and our chief operating officer, Roger Rutherford, has been involved in the establishment of the Code as a member of the ACI FX Committee. I am also a part of the FMSB committee on eTrading: Trading Rulebooks and System Outages, which sets the standards and behavior for trading counterparties across a broad range of FICC markets. Therefore, as an executive management team, we recognize the importance of the Code to the FX market and place substantial emphasis on setting the highest standards for best practice and ethical trading behavior.

From our experience, we have seen greater levels of debate and discussion about the Code’s application between banks, trading platforms such as ParFX, vendors and clients. There has also been an uptick in interest from prospective clients, as our trading model is underpinned by a fair, equal and transparent trading environment.

There has been good progress made in terms of adoption, with over 500 participants now signed up to the Code. Survey results released by the Global Foreign Exchange Committee (GFXC) last month showed that 95% of respondents had read all or part of the code and that the majority of respondents thought the Code had made a positive impact on their firm and the market.

In terms of the working groups, the one focusing on disclosures describes eight characteristics to help market participants develop and review FX disclosures and lays out the work ahead on understanding the challenges related to disclosures in the context of anonymous platform trading.

Similarly, the cover and deal working group released a report which describes various aspects of “cover and deal” arrangements and highlights specific, relevant principles within the Global Code that relate to such trading practices. It’s good to see the working groups release findings but it will be even better to see them implemented across the market.

While this is all positive progress, the job is far from done and there is still a long way to go to increase transparency in the FX market. Associations such as ACIFMA, which helped to develop the Code and has more than 10,000 members, can play a crucial role in this respect.

Leaders at individual institutions also need to take the initiative and show they are taking the Code seriously. If all 500+ institutions that have signed up to the Code encourage their customers to follow suit, we will see a rapid change in trading practices and widespread genuine transparency in the FX market.

TM: Describe the “pause” feature incorporated into ParFX’s trading platform?

Marcus: ParFX’s randomized matching methodology replaces the concentration on speed with a focus on intelligence and strategy. By removing the speed advantage as a key factor of success there is a renewed focus on trading behavior, with greater quality and certainty of execution.

It also levels the playing field and makes trading opportunities fair and equal for everyone. Since its introduction, the industry has recognized the importance of randomization as a tool to address disruptive trading behavior. Other platforms have attempted to replicate our model in different ways – none of which constitute meaningful randomization.

TM: Is this like the speedbump feature seen in equities marketplaces such as IEX? How is it different?

Marcus: In other markets, some platforms have introduced latency floors and slowed down or batched orders, but these measures don’t effectively deter disruptive trading behavior.

True, meaningful randomization happens at an order entry level and applies to all trading elements, including submissions, amendments and cancellations. This consistent approach has proven itself to be a legitimate tool against disruptive low-latency trading strategies and successfully creates a market of genuine interest, reliable price discovery and firm liquidity.

Our model, developed in conjunction with the market, pioneered the use of randomized matching technology and has already proven to create a better trading experience.

It is meaningful enough to nullify disruptive traders whose strategy relies solely on speed, and prevents abusive practices such as rapid order submission and cancellation prior to execution. However, it remains meaningless to those that have a genuine trading need, seek firm, executable liquidity and compete on strategy.