Launched a little over a year ago, FastMatch, an ECN for spot FX trading, is rolling out an innovation in the FX market: real-time dissemination of midpoint data, the point between the best bid and the best offer. The firm also is offering clients the ability to trade at the midpoint.
Trading at the midpoint is a new concept in the FX market-historically not as transparent as the equities market-that can dramatically reduce trading costs, said chief executive Dmitri Galinov. If a client crosses the spread, they pay up to $100 per million, Galinov said. If they cross at the midpoint, they’ll cut that cost in half, he said. The firm is reaching out to clients to explain the benefits of the new order type, which will be the biggest initiative for the coming year “in terms of pure client impact,” he said.
FastMatch will give a client the ability to enter a “not worse price” before trading at the midpoint, which makes them comfortable that they’ll get the price they put in or better, said Galinov.
Javier Paz, a senior analyst with Aite Group, said the new order type is innovative. “While the midpoint is not new as a concept, it is not common for a market maker or a venue to promote it. It is innovative in the marketing for electronic FX trading.”
“As much as they can articulate it in a way that makes economic sense, they should have some traction with that and we might see others trying to copy it,” Paz said.
FastMatch, which launched in June 2012, now trades $10 billion notional per day on its New York platform. FastMatch just rolled out a separate London matching engine now trading $1 billion notional a day. Most of the order flow for the new system comes from retail brokers and investment banks, Galinov said.
Initial liquidity for the platform came from FXCM, which handles $25 billion in retail FX order flow, and BNY Mellon, the largest custodian bank. Both FXCM and BNY Mellon are backing FastMatch. The third backer is Credit Suisse. The big broker provided the code for the basic matching logic and the FIX engine used in its Crossfinder dark pool, said Galinov, a Credit Suisse alum who previously was head of Crossfinder.
The new platform is very fast, said Galinov, who puts it in a league with the Chicago Mercantile Exchange. The system delivers 200 microseconds average round trip latency with a 50 microsecond standard deviation. But Galinov said it is not geared towards high frequency traders because FastMatch is a price/size priority rather than a price/time priority system.
The speed enables the system to disseminate the pricing data more efficiently, he said.
In addition to the London matching engine, FastMatch is looking at launching in Tokyo as well. The region has significant retail FX order flow, and “it takes too long to get to the US for matching and back,” Galinov said.
FastMatch has six full-time employees in New York and three in Moscow, which handles the Asian hours shift and the beginning of the London trading day. In addition to serving retail brokers and investment banks, the firm provides its services to hedge funds, asset managers and some HFTs and corporates, Galinov said. The firm is already profitable, he added.
