360T’s Matt O’Hara talks NDF revolution, FX workflows, white labels at TradeTech FX

North America’s biggest FX gathering of the year took place on February 22-24 at The Diplomat Beach Resort in Florida, USA.

More than 600 executives – including key regulators, buy-side, sell-side, and technology vendors – attended the conference this year for the panel discussions, hands-on workshops, and to network.

FinanceFeeds was there covering the event. Editor-in-Chief Nikolai Isayev had the opportunity for a quick chat with Matt O’Hara, CEO of the Americas at 360T, the Deutsche Börse Group’s global FX unit and award-winning multi-bank platform and technology provider.

360T enables buy-side firms to optimize their entire FX trading workflows, helping them to reduce their execution costs and operational risks across the entire trade life cycle while enhancing compliance functions and transparency at the same time. Regulated by the German BaFin and offering access to regulated trading environments via its Multilateral Trading Facility (MTF) and Swaps Execution Facility (SEF), 360T provides a link to a broad array of liquidity from more than 220 liquidity providers and is connected to more than 2,400 buy-side firms globally.

Matt O’Hara joined 360T in 2015 from Thomson Reuters where he was a Senior Vice President and Head of Capital Markets in the Americas. At 360T, his primary responsibilities encompass driving growth and business activities in Americas.

360T’s streaming NDFs complement the disclosed RFS offering and address market demand for an alternative hedging venue. Who stands to benefit the most from this solution?

We think that growth of streaming pricing represents the next stage in the evolution of the NDF marketplace, and as such we think it will benefit everyone.

In the Spot FX market trading initially occurred via voice, which made price discovery a time-consuming process, heightened operational risks due to the manual processing involved and made proving best execution challenging. Over time we then saw RFS trading evolve in response to the demand from buy-side firms to put pricing into competition in a more efficient and transparent manner.

However, RFS trading limits the number of providers competing for trades and can create signaling risk, which can be detrimental to execution performance. This in-turn lead to the growth of streaming pricing, which is a good way of reducing signaling risk and enables spread compression as more price streams from diverse sources can be put into competition. It also provides users with a continuous, transparent and accessible source of liquidity.

Streaming pricing thus helped to make the Spot FX market more efficient, competitive and robust, with trading volumes and available liquidity increasing substantially as a consequence. Now we’re seeing the same developments occurring in NDFs, and once again the end result will be a better marketplace for the entire industry.

However, it’s important to remember that there are important differences between the NDF and Spot FX marketplaces.

For starters, the former is much smaller than the latter and therefore streaming pricing is generally only effective for the most frequently traded NDF pairs.

That is why 360T offers access to streaming prices in the eight most liquid NDF pairs – USD/INR, USD/KRW, USD/TWD, USD/IDR, USD/PHP, USD/BRL, USD/CLP and USD/COP. The most liquid tenor is generally the 1M, but we anticipate that other tenors will develop deeper liquidity pools over time. For more custom dates though, RFS remains the most accessible channel.

The prominence of EM currencies in the NDF market is another factor which differentiates it from the Spot FX market. This means that market participants can generate significant benefits by trading on platforms which are able to connect pools of local onshore liquidity in developing markets with a worldwide community of offshore users. For example, in Brazil alone 360T is connected to more than 30 local onshore banks who can potentially be a unique source of pricing to our diverse and global client base.

Of course, if there is no credit path between the offshore firms and these local banks then this benefit becomes purely theoretical, which is why 360T supports multiple different credit models for streaming NDF trading – bilateral, prime broker (PB) intermediated and via a credit hub/CCP. This offers the maximum possible flexibility for accessing streaming NDF liquidity.

Last year, the 360T Swaps User Network (SUN) platform was voted the Best sell-side OTC trading initiative by Waters Technology. How does it work?

360T SUN is a fully automated FX Swaps limit order book with a mid-rate matching capability supported by an automated bilateral credit model. It addresses the fact that vast swathes of the $3.8 trillion of notional FX Swaps volume traded each day is executed via manual channels which can be inefficient, opaque, not cost-effective and introduce operational risk into the trading process.

To expand on this slightly, 360T SUN offers price transparency through an indicative streaming independent mid-market rate which allows users to submit interest to buy or sell with intent protection. Neither the size, nor the direction of the order intent is visible within the mid-book.

This indicative mid is provided by the (also award-winning) Swaps Data Feed (SDF), created in collaboration with DIGITEC, which is composed of more than 20 independent bank Swap curves and delivers real-time G10, EM and Non-Deliverable data across the curve from O/N out to five years. Using sophisticated and transparent methodology, the SDF delivers not only market data for standard tenors, but also streams mid prices around IMMs, quarterly turns and broken dates.

360T SUN is available to traders through the 360T HTML GUI, while e-FX desks can also connect electronically via FIX API, allowing both streaming prices to the limit order book and midrate interest to be placed.

In offering API trading 360T SUN opens up the door for streaming prices and auto-hedging, enabling e-FX desks to take on the risk and execution of FX Swaps. By giving banks the ability to design hedging mechanisms and automatically utilise order types that have long since been available to Spot FX traders, we’re enabling them to essentially build out a new business of auto-hedging Swaps

While credit has historically been a barrier to FX Swaps automation because it required manual processes, 360T SUN solves for this by offering a granular low latency pre-trade credit check tool that can be maintained manually or via REST API. This tool allows users to manage their risk through six different risk methodologies, enabling them to build either a simple or complex ruleset which determines how their credit is applied. 360T SUN also provides simple API connectivity to sell-side firms’ own credit engines.

We believe that the platform will prove to be transformational for the FX Swaps market, aiding price discovery, reducing operational risks, improve efficiency and creating a whole new world of data, which in-turn will open the door to new products and services, such as algo trading and improved transaction cost analysis (TCA).

How can one utilize APIs and software developments to link proprietary and third-party applications to simplify end-to-end workflows?

We spend a lot of time helping clients of all shapes and sizes to streamline their FX workflows and this inevitably involves linking to other solutions within their technology stack. Given that we’re at the TradeTech FX USA conference, I’ll focus in specifically on how we help institutional investors in this regard.

We operate an Execution Management System (EMS) which is integrated, both pre-trade and post-trade, with other platforms and technology solutions that are part of the clients’ FX trade lifecycle.

Institutional investors typically utilise a third-party or in-house built Order Management System (OMS) which feeds orders into the 360T EMS and once the trade is executed all the information about that is subsequently transmitted back into the OMS. Then we wrap a layer of data and analytics around this to help the client understand how effectively they are trading and how their counterparties are performing.

Now this is a form of automation that helps to simplify end-to-end workflows, but it’s really just integration and processing which, although very important, is technology that has been around for years.

At 360T we’ve gone far beyond this when it comes to workflow automation, applying unique data sets and content at a very granular level to help buy-side firms streamline their FX trading operations.

So the next step might be automatically organising, netting and grouping orders within the EMS based on a wide range of bespoke criteria and rules (currency pair, product, tenor, notional amount, time of day, fund, custodian, etc – we can support custom parameters too). This can be used to simplify and streamline everything up to the point of execution, with the trader still conducting this manually.

From this, we see buy-side firms using our technology to automatically execute the FX trades themselves, usually focusing on vanilla trades that have a smaller notional value and necessarily don’t require the expertise of the traders on the desk. Again, users can implement a highly granular and completely bespoke list of customised rules to determine which trades get executed automatically, using our award-winning market data feeds as a tolerance check to ensure that no trades are ever executed more than a pre-defined distance from the market midpoint.

Normally, firms start using auto-execution for Spot FX trades because this is a highly liquid segment of the marketplace, and then start to expand out to other instrument types. And key to all of this is using high-quality data as a benchmark to validate and prove that best execution has been achieved.

As a result, we see buy-side firms now generating orders in their OMS which are then automatically directed to 360T, netted in an optimised fashion to minimise costs by reducing the amount of trading activity which occurs, executed at or very close to the market midpoint and sent back to the OMS with all the data and analytics necessary to demonstrate best execution.

This streamlined workflow frees up traders to focus on the most complex or mission-critical tasks on the desk, eliminates the operational risks inherent in manual processes, provides a comprehensive audit log of all trading activity and reduces execution costs.

For many firms there is no strong economic rationale for building their own proprietary FX trading solutions. 360T happens to offer a white label solution. What are its main features?

360T actually white labels a number of technology solutions.

For instance, our Automated Dealing Suite (ADS) is a fully fledged routing, margining and credit system that lets users to implement pre-defined rules for different counterparties, allowing financial institutions to automatically quote prices while still maintaining full control and flexibility over all their FX trading.

Our Market Maker Cockpit (MMC), meanwhile, enables firms to manage and control two critically important aspects of trading: price making and flow risk management. The 360T solution contains the state-of-the-art features needed for effective price construction and warehousing, utilising our unique data feeds. These functionalities allow market participants to become a more competitive when offering FX pricing externally.

There is our Limits Monitor module, which allows users to monitor and control their counterparty credit risk arising from FX trades. We’ve seen firms leveraging the flexibility of Limits Monitor to define credit lines separately for settlement and pre-settlement risks and utilising the API connectivity to integrate their internal credit systems and reflect limit updates real-time.

While these elements of our white label solution are more under-the-hood, we also offer customised front-end solutions with branded GUIs that financial institutions can roll-out externally. Available 24/5, the GUI users can execute transactions while benefitting from liquidity across all time zones and receive a tailored experience that is based on their specific needs, with instant and easy execution of FX trades, order management and readily available transaction history.

It’s also worth pointing out that our white label offering provides connectivity to all major multibank platforms for price distribution.