(Bloomberg) — The ParFX currency market set up to prevent bad behavior by the fastest traders is now courting their business in an attempt to attract volume.
The foreign-exchange market created by Cie. Financiere Tradition SA processed the first orders on behalf of high- frequency traders — New York-based Virtu Financial Inc. and London-based GSA Capital Partners LLP — last month. A further five firms will join the pilot stage in the next week.
The whole point behind ParFX is that the system, model and processes put in place were designed to nullify any disruptive behavior on the platform, not to discriminate against any participants, said Dan Marcus, chief executive officer of ParFX. The result of that, of course, is to prove the model to the entire market. That should lead to greater network effects and higher volumes.
More than a decade of technological progress and regulatory changes have left high-frequency traders — a catch-all term for automated buying and selling strategies — as the dominant providers of liquidity in many markets. With human market makers supplanted, trading venues are left relying on volume from high- frequency traders.
The decision by ParFX to welcome the speediest traders echoes a similar decision by IEX Group Inc., a U.S. stock market opened a year ago to blunt allegedly problematic trading behavior by high-frequency traders. Virtu, which suspended a planned initial public offering earlier this year amid mounting criticism of its industry, is among the speed traders on IEX.
Frustrated Banks
Swiss brokerage Cie. Financiere Tradition set up ParFX at the request of banks that had grown frustrated by the arrival of high-frequency traders on their existing platforms. The platform, which started trading in July 2013, subjects orders to random pauses of about 20 to 80 milliseconds. It also requires the broker, bank and client to disclose their names after completing their trades.
Weve got a very encouraging, healthy pipeline of people that we want to come onto the platform, said Roger Rutherford, chief operating officer of ParFX. For us, its really a sign of confidence in the trading model and ethos of the platform.
ParFX competes with Thomson Reuters Corp.s FXall and ICAP Plcs EBS Direct. The EBS platform batches orders and holds them for between 1 and 3 milliseconds. EBS had volumes of $85.5 billion per day last month, while Reuters processed $99 billion a day in July.
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