THE FUTURE OF FX – FAIR TRADING TECHNOLOGY
The future is clear The official launch of the T3 Execution Bridge by Fair Trading Technology (FTT) last year brought an unprecedented level of transparency to FX trading. Frances Maguire talks to FTT about the need for greater transparency in FX as we move towards a new regulatory era.
Fair Trading Technology’s T3 Execution Bridge provides a transparent connection to the ECN market. Through provision of a transparent order reporting system it enables users to verify all their transactions with their broker and know that they are clear from any manipulation or indeed any other unethical behaviour. The technology has been designed by traders, for traders who want good transparency, ECN liquidity and fast execution while using their preferred platform. In addition, brokers adopting the solution have the advantage of taking on zero risk as it only allows straight through processing (STP) of trades. This ensures that the long-term business interests of broker and trader are aligned. Interestingly, McLean Van Cleve, Chief Systems Engineer at Fair Trading Technology, says that the T3 Execution Bridge was actually created for use within FTT’s own group and not originally intended to be a business proposition. He says: “We realised a long time ago that for our trading we needed to be in total control over all the components of this solution, and that we had to find reliable liquidity.”
FTT chose to use Dukascopy Bank because the model employed was not to take the other side of the trade, but instead to pass all the trades through into the open market, bringing greater transparency to the whole process. Van Cleve adds: “People get up in arms about brokers’ taking the other side of their trades but somebody always has to take the opposite side of a trade, otherwise the market wouldn’t work. When it’s your brokerage however, that is a huge conflict of interests in our eyes because it provides incentive for unscrupulous behaviour, as some recent fines in the FX market demonstrate.” “Initially, our idea was that if you provide transparency, you are giving clients proof that you are providing a fair trading
The T3 Execution Bridge was actually created for use within FTT’s own group and not originally intended to be a business proposition.
environment, with no trade manipulation whatsoever.” Can a broker be profitable if the client is profitable though? This is certainly how it should be. The broker should not have the other side of the trade if there is a conflict of interests. By being transparent FTT believes it can show the client that it is operating in the fairest trading environment. The T3 Execution Bridge was opened up to the public in August 2010 but the firm has been using it and developing it for several years. FTT supplies T3 to a handful of banks and simply charges a volume fee for any customers using the solution through MetaTrader, one of the largest retail FX trading platforms. Van Cleve says it is hoped that T3 will be used as the basis for a new standard for the FX industry and believes that greater transparency and this kind of self-regulation could negate the need for more government regulation. “With greater customer transparency there is no incentive to do anything unscrupulous but at present the typical brokerage model is not unlike a casino,” he adds. The huge growth in FX trading in the retail market is driving providers to offer greater levels of sophistication, more akin the institutional market. “The typical bridge model that is being used in this industry is quite unsophisticated, relative to the phenomenal
FX-MM DECEMBER 2010 - JANUARY 2011 ISSUE