Perspective: Invast Securities Director of Institutional Sales Geoff Last says “FX liquidity keeps changing”

The continually advancing and evolving nature of the provision of FX liquidity is of great interest to many brokerages and non-bank prime brokerages alike, and indeed many of the giants among electronic trading firms are beginning to place their opinions on this matter.

Today, Geoff Last, Director of Institutional Sales at Invast Securities in Australia has provided his perspective to FinanceFeeds.

“In all my years of foreign exchange I’ve never known the pools of liquidity to change so often” said Mr. Last.

“Some of this is brought about by banks proprietary desks closing,taking on less risk, as well as regulatory requirements having an impact, and we are also seeing an emergence of non bank liquidity filling the void. Some are hedge funds others are pure algorithmic trading systems with little human intervention” he said.

“Amazingly spreads have remained consistent or is this just an illusion?” – Geoff Last, Director of Institutional Sales, Invast Securities.

Mr. Last considers that banks taking less risk means offloading risk and therefore pricing can become fragmented for a very short period of time. Price sensitivity is the new norm among some banks now as they slowly become agency models.

With regard to how Invast is handling the need to adapt and provide up to date institutional liquidity to its clients, Mr. Last said “At Invast Global we have made adjustments to allow our clients the flexibility to execute trades with our liquidity resources. PurePrime and PureFX are Invast Global products that allow LP selectivity whether you are an experienced trader, HFT, hedge fund, proprietary trading firm or retail broker.”

Mr. Last, who has 39 years of experience in the electronic trading and interbank FX industry, having begun his career in 1977 as an FX Trader at Commercial Bank of Australia before progressing to executive positions in esteemed institutions, explained “I have noticed some substantial changes over recent years, which I have often referenced back to how things were when I began in the 1970s.”

“I had worked with phone broking in the early days and it has stemmed from that. I was a trader, and in my day there was 6 brokers, most of which were voice brokers, and at that time not every one had the same pricing. They were different and each one was important within the currency pairs that it specialized in” explained Mr. Last.

“An important point to consider when looking at the foundation of this side of the business is that this same specialization still exists today within the bank and liquidity pools in that some may be stronger in their currency pairs” he said.

“Some of hte banks have now pulled out of the market because they cannot compete in that space, a matter that was largely to do with priority desks that were taking the risks and they have now farmed this out. Algo and non-bank market makes are now filling that void” – Geoff Last, Director of Institutional Sales, Invast Global.

Liquidity void to be filled by non-banks and hedge funds?

Mr. Last explained that in his opinion, going forward, we will be left with alot of non-banks or hedge funds, which will come in and fill the void, and because the provision of liquidity in electronic trading is so highly technical these days, everyone wants fast millisecond execution therefore the key is going to be the IT side of it. “I don’t think the banks that are scaling down their businesses want to invest in that technology” he said.

“Where we make a difference is that we at Invast Global offer our cusotmers transparency about who they want to use in terms of non banks and banks. We don’t just give them a stream, instead we customize their liquidity.”

“We may have, for example, a high freqency trader as a customer, and not all banks want to take this business because not all want to take this type of flow so we go to other institutions, for example a non-bank,and they would be receptive to taking that flow” explained Mr. Last.

In the old days, top of book feeds reigned

Mr. Last drew on his experience, looking back at how liquidity was provided some years ago and how today’s requirements are different. “In the old days, it was a case of giving brokerages a feed at top of book and everyone wins. Now it is going toward specialist non banks or banks which angle their services to specific requirements of customers.”

“There are some agentcy banks that don’t want to hold risk and so they pass it through, which can upset cusotmers that want to trade a larger amounts, therefore we go to institutions that would warehouse the flow so that a larger order flow can be handled discreetly with less detrimental price movement” – Geoff Last, Director of Institutional Sales, Invast Global.

Mr. Last further explained “We have a very strong prime broker arrangement with many firms which enables us to marry up with our liquidity providers that we can offer the service to.”

“We offer liquidity providers the service, and they connnect to brokerages. We are a Tier 1 broker with strong capitalization that can offer front line execution rather than being a prime of prime.”

Institutional client onboarding = less costly

“At Invast Global, we are completely different from our parent company. Here in Australia, we are more focused on institutonal business” said Mr. Last.

“The cost of acquiring an institutional client is very different to the challenges that retail brokerages face, as it takes a lot more time and is far more resoruce hungry to identify and establish an institutional client, to find out what they need from us, however once the client is on board, it is just one client, and the relationship is very much longer. In the retail sector, it costs a lot of money to bring on board clients, and the number of clients that are needed is far higher, therefore it costs a lot more to make money out of retail customers” said Mr. Last.

“We deal with retail brokers who don’t have the capitalization to maintain their own prime services, so we work with them to find the best execution for their clients, whether they take the next step and do the STP is a consideration, and I am sure that many have clients which do big volume and don’t want to take that risk cna pass through to us.”

Conclusion

Mr. Last concluded by explaining that “With many proprietary trading desks selling down, new technology has allwoed those who worked on such prop desks to open their own shops. It is not so difficult these days to open a small hedge fund, for example.”

“Many of these entities do not have the capital behind them to receive a prime brokerage relationship so we can fill the void there too. From a previous position at a trading desk within a bank, a person can step in an say that he wants specific banks and specific services to run his fund. It’s part of the shift from trader to hedge fund.”

“I tend to think that if I was a trader still, what would I like on the receiving end? This is how we lead in developing customized services for relationships with commercial clients.”