FX HedgePool is known for its pioneering approach after making its mark with a unique peer-to-peer matching platform for institutional FX swap liquidity. It has now taken its unique credit intermediation model and applied it to the algo space, with the launch of its new Algo Store. FX HedgePool’s Jay Moore, Co-Founder and CEO, and Emin Tatosian, Co-Founder and CTO, share why a new approach was needed to provide unhindered FX algo access to buy-side users and the various industry challenges the purpose-built platform solves.
According to Moore, the Algo Store is a very exciting development for FX HedgePool and marks its first venture into the algo space. It leverages the established success of FX HedgePool’s existing product, X•Match, which introduced the concept of peer-to-peer matching for swaps liquidity, including its notable innovations around credit intermediation and the separation of credit from liquidity.
The Algo Store allows buy-side firms to transmit orders from their OMS directly into FX HedgePool, then source bank, non-bank, and peer-to-peer liquidity unhindered by credit or broker restrictions. Moore explains that this capability is part of a multi-phase product roadmap under the new X•Bridge solution, which enables liquidity providers to access and distribute their liquidity straight to the buy-side.
“Our latest innovation, X•Bridge, launches with the Algo Store as a new way for large asset managers to access FX algos efficiently on a purpose-built platform,” says Moore. “For the first time, the buy-side can access not just bank algos but also non-bank algos in the same place while utilising the same credit intermediation model developed for our swaps matching service.” This change is significant for the industry, Moore adds, because hedge funds have long had an advantage in accessing a broader range of liquidity by using prime brokers who act as their credit intermediaries. However, buy-side entities with broad and complex fund structures have more restrictions around how they can access liquidity, which restricts their selection of pricing sources. “At FX HedgePool, we have addressed this challenge by developing our unique credit provider network, which currently includes 14 banks that act as credit sponsors. Clients can use credit lines under existing ISDAs to access bank, non-bank, and other sources of liquidity, creating a true all-to-all market for the first time.”
Win-win for the algo market
According to Tatosian, the Algo Store, which is expected to go live in September of this year, addresses several pain points currently experienced by buy- and sell-side clients. “High brokerage costs, inability to freely access non-bank algos, limited access due to credit and broker restrictions, and aging vendor technology are all major market pain points,” he says. “We’re uniquely positioned to solve these pain points given our unique credit intermediation model and modern technology platform.” FX HedgePool’s nimble technology stack and rapid product delivery capability allowed the firm to deliver the first iteration of X•Bridge in just four weeks, Tatosian adds. “Our platform offers unrivaled connectivity to the buy-side via OMS integrations and the sell-side via bank integrations. Both X•Match and X•Bridge are woven into the fabric of e-FX, with an estimated coverage of over 90 percent of the universe we are looking to service, namely the real money client segment. As a fintech, we also have a much lower cost basis, allowing us to slash brokerage costs across our services and pass the benefit onto our clients,” he says.
“For asset managers, the ability to access a far wider range of algo providers is seen as the Holy Grail of solutions, not just for algos but also to access more liquidity providers, generally,” adds Moore. “Our buy-side community has come to us with the same challenges. One is that they do not have direct credit relationships with many algo providers and would otherwise need prime brokers to support access. Two is the allocations because asset managers must book at the account level, which can only be done with the banks they’re papered with under existing ISDAs. These are the two key challenges that we address.” Both bank and non-bank liquidity providers also recognise the solution as a way to tap into the real money space economically and utilising a more modern platform, Moore adds. “The response from liquidity providers has been overwhelming. It means more volume for them and more distribution. In turn, the response from the buy-side has also been terrific. They can now for the first time utilise FX algos more freely, which historically has not been possible.”
Value-add services and benefits
In the future, the Algo Store will open new possibilities to add even more value for clients, notes Tatosian. “Beyond providing unhindered access to a range of previously unreachable algos at a lower cost, we will offer best-in-class pre-trade and inflight analytics to help traders make informed real-time decisions,” he adds. “Furthermore, we plan to offer an intelligent workflow automation layer driven by trader preferences.”
Moore notes that a further benefit for real money clients is the credit intermediation offering from FX HedgePool, which provides an additional level of anonymity and avoids information leakage. “Buy-side clients tell us that sending an algo to a bank today reveals exactly what they are doing. In our model, the bank serves as a credit provider, which means the algo can execute anonymously. This minimizes the potential market impact and information leakage, which is a big driver behind the buy-side interest in our new offering,” he concludes.
