Tyler Moeller is chief executive of Broadway Technology, a leading provider of financial trading systems and services. Its flagship trading system is called The TOC™. Traders Magazine caught up with Moeller to talk about how the firm extended The TOC platform into foreign exchange trading.
TRADERS MAGAZINE : When did you start in FX?
MOELLER: We started FX in 2006.
TRADERS MAGAZINE : That was one of your early asset classes?
MOELLER: Yes, after Treasury bonds and futures, we started into FX with BNP Paribas. They were not only our first FX customer but also our first global customer, so that was a very big deal. We started with them in the Treasury space, building advanced trading systems for them, and then they asked us to build a global FX system.
TRADERS MAGAZINE: For market making activity?
MOELLER: For all FX trading. We had built up a new trading system for them in the Treasury space. It did very well. Then, they had a big initiative to really increase their overall market share in FX and they wanted to know if we could do all the things we had done in the Treasury space in FX: build out automated trading systems but then also get into order routing and execution and customer dealing, and a lot of the flow side of the business.
TRADERS MAGAZINE: You had already done all those things in a Treasury system you had first built for Countrywide Securities, so this was just a product extension essentially?
MOELLER: Absolutely. One of the things we focused on from the very beginning with The TOC, and all of our products, was to keep things generic and asset-class agnostic. Only where they really need to know specific nuances of asset class are things not generic. We have built everything to be generic this way, which means we can share a tremendous amount of our code and a tremendous number of our products across different assets.
So, yes, we were able to move into FX in a couple of months and start building out FX for them. We also did a global deal so we started building out technology in London, New York and Asia.
TRADERS MAGAZINE: How big is FX now as a percentage of your business?
MOELLER: From a revenue perspective, it is about a third of our revenue right now.
In the last few years, we saw huge growth in the Treasury side of the business partly because a lot of firms became primary dealers. There was also a huge amount of liquidity generated by the Treasury.
TRADERS MAGAZINE: That’s right. The Fed has to trade with somebody, right?
MOELLER: Yes. So we saw that side of the business skyrocket, which was great. Now, in the last year and a half, we’ve actually seen the FX side of the business pick up a lot, and we’re currently in a large number of deals with a few big global banks, as well as a number of boutique or middle-tier banks, so we’re seeing a lot of growth across the industry in FX.
TRADERS MAGAZINE: And basically these are banks that you help with market making technology?
MOELLER: Some of it is just the inter-dealer execution side, the “I need to buy 10 million EUR/USD and I need to get that executed at the most optimal price, whether it’s across different banks or at EBS and Reuters or elsewhere.” You can ask for prices from an UBS, Deutsche Bank, Goldman, or BNP Paribas, and they’ll give you prices all day long, and you can just execute against those, so they’re basically market making to you, directly.
Even if you’re a small hedge fund, you can get direct relationships with 15, 16 banks, and they’ll all give you prices. But then you also have inter-dealer markets, such as EBS, Reuters, Hotspot, Currenex, and FXAll.
They all trade differently with different nuances. So routing in that whole world is very complex, and that’s what our order router handles, it can look across that whole world and get you the best execution, working your orders dynamically.
TRADERS MAGAZINE: What does that do for a trader?
MOELLER: We’ve got the order routing and execution side of the world, but we can also generate synthetic crosses as well, so if you want to trade, say, EUR/MXN, which is not a very liquid product, we can generate a synthetic EUR/MXN price by combining EUR/USD and USD/MXN. We’ll create an equivalent EUR/MXN price, and then you can even route that among the real EUR/MXN liquidity, so we can create pretty sophisticated trading relationships.
TRADERS MAGAZINE: You’ve basically done the math and you said, if you do this, you can lock in.
MOELLER: Yes. So if you were to buy EUR/USD and you bought Euros and sold dollars, well then if you buy a USD/MXN, you can buy the right amount of dollars so then your dollar position goes to zero and you’re left with just Euros and Pesos.
TRADERS MAGAZINE : What else?
MOELLER: So that’s all on the execution side. We also have what we call Ecommerce, which is for making prices to your customers. So if you’re a top-tier bank or boutique bank and you’ve got customers that you want to send prices to, whether it’s across a direct bank feed or into a Currenex or into a EBS or something like that, then we’ve got all the tools which let you tier your customers and make them prices. You can say if this customer request is from a stream of five million USD/JPY, then I’m going to take whatever USD/JPY is in the market, and I’m going to spread it a little bit, and I’m going to give that specific price only to that customer. We have all the tools for doing that, and that’s what we call our Ecommerce side.
TRADERS MAGAZINE: Basically, you’re back there doing the math for each customer, their risk levels and how good a customer they are.
MOELLER: Exactly. And on top of that you add credit checks as well. So you say, all right, I’m only going to let this customer trade this much with me, and proceed.
