BidFX recently announced that Singapore Exchange (SGX) has bought a 20% stake in the company, with an option to acquire a controlling interest. The firm’s CEO, Jean-Philippe Malé, talks to Profit & Loss about the rationale behind the deal, and some of the structural trends that he sees shaping the FX market.
Profit & Loss: What was the thinking behind the SGX deal?
Jean-Philippe Malé: We see the FX and the futures markets getting very close to one another and so we really wanted to partner with a large player in the futures market to help develop our platform purely as a technology offering that will bring liquidity coming from the futures market together with our existing FX offering. BidFX is very successful in Asia, a very large portion of our revenue comes from Asia and hence the partnership with the largest FX futures exchange in the region came naturally.
P&L: In the release announcing the news it said that you’re going to use the funding from this deal to further penetrate the institutional investor segment. Can you give us any more details about where specifically this funding will go?
Jean-Philippe Malé: BidFX is relatively small in terms of headcount, we ended last year with 35 employees spread mainly across Europe, Singapore and New York, with the R&D is done out of London. We are basically at a point where the product is ready, it is accepted by the market and we have more customer implementation pipeline than we can handle. So, we’re going to grow both the R&D and the onboarding departments to be able to respond to the market demand for our products, and we’re also going to increase our sales and market teams to address the markets that we don’t cover yet.
P&L: You said that a lot of your revenue comes from Asia, what’s driving this?
Jean-Philippe Malé: There’s a lot of different currencies in Asia, the market is extremely fragmented with a lot of different liquidity providers that specialise in these NDF currencies, and I think that has really played to our advantage. Also, BidFX is a relationship platform and a lot of these markets in Asia are still very relationship driven, unlike Europe and the US where there’s a bit more anonymity in terms of trading.
P&L: You also mentioned that you see FX and futures getting closer together, what do you see as driving this trend?
Jean-Philippe Malé: Capital constraints is clearly one driver. It’s getting more and more difficult to get a prime broker with large PBs raising their fees. I think that as regulations increase capital requirements will make it more difficult to fund this kind of OTC activity and some flow will naturally move into futures.
We’ve also seen a few of our clients that used to trade OTC FX to hedge their portfolio shifting part of their activity to futures purely because it’s easier for them because they don’t have to sign ISDAs with all of their counterparties and it becomes easier to prove best execution. I should point out here that I’m talking about long only asset managers and it is only a subsection of them rather than a general move, but I still think that it’s getting to the point where investors can no longer ignore futures.
P&L: So, do you see this deal with SGX as part of a broader trend of exchanges buying into the OTC market?
Jean-Philippe Malé: Absolutely, but I think that it goes both ways. I think exchanges have realised that there’s a big part of the market that they’re not touching and so they’re interesting in getting access to platforms and technology vendors such as ourselves, not necessarily so that they can bring this part of the market onto the exchange, but just so that they can get some exposure to it. And by the way, this is true not just in FX but also in fixed income. And then from our side, we have clients asking us to become bigger and many of the competitors that we face on deals are backed by very large financial groups.
P&L: Speaking of other markets. BidFX was spun out from Trading Screen, which has a background in equities. To what extent to you see parallels between what you’re doing now and what you’ve already seen happen in the equities market?
Jean-Philippe Malé: That’s an interesting question. I can see both markets getting closer together, but I wouldn’t say that FX is trying to copy equities. What’s interesting is that TradeWeb – which is pretty big in ETFs, which is an equity-like instrument – recently announced that they’re now doing RFQ, full block equity, and it makes me smile because for the past ten years I’ve kept reading that fixed income is going to turn into equities, but actually equities is turning into fixed income!
But equally, you’ll probably see some people in FX and fixed income that are used to dealing purely on an RFQ, bilateral basis and giving up a lot of information before the trade, beginning to trade on more anonymous central limit order book, centrally cleared style venues.
P&L: Are there any other major trends that you see developing in the FX market right now?
Jean-Philippe Malé: The main trend that we’re seeing right now is the greater use of algos. One of the big projects that we’re going to be working on this year is adding a lot more data and analytics to our offering. It’s not our goal to become a TCA provider but I would say that we probably have some of the best data for certain currencies, in particular EM currencies, and our system is designed to respond to market demand when it comes to big data. I think that’s clearly where FX and flow automation is going – the algos are just the cherry on top of the cake, underneath what people really need is good data and good analytics to drive these algos.
P&L: In terms of product road-map then, what else are you focused on going forward?
Jean-Philippe Malé: Well we’re continuously looking to expand our product coverage in FX. Last year we worked a lot on an FX options product that went live this year, we’re connecting liquidity providers at the moment and we’re about to go live with our new netting engine.
This netting engine is really a new generation order management system (OMS) for FX that is very tightly linked to the EMS that we have. We’ve already had flow automation for a number of years on the EMS part of the platform, but now we’re also going to have the entire flow automation on the OMS as well.
