Intense competition is driving rapid digitization as financial institutions seek an edge over rivals in the nonstop foreign exchange sector.

Author: Michael Shari

Table of Contents

The Hunt For The “Holy Grail” In Foreign Exchange

Trade in foreign currencies (FX) is the world’s largest and busiest financial market. About $5.5 trillion changes hands every day, all day, across all FX products, from cash to derivatives, according to Boston Consulting Group. Left without a nanosecond to breathe, every institution that deals in FX, from the bulkiest Wall Street bank to the nimblest stand-alone desk, is locked in a tight race to discover new counterparties to trade currencies in more perfectly timed trades at better rates with lower costs than ever before. This battle is fueling an insatiable thirst for innovative methods of finding liquidity and locking in trades. It’s also creating opportunities for innovators developing new software for FX.

In fact, innovation in the FX space is moving so fast that experts say the very definition of innovation is a moving target. Traders who keep pace with their peers technologically boast of their network data acquisition (NDA) systems, which capture the data that flows through their desktops for real-time analysis. But some of the latest systems still tend to spit analytics in prepackaged reports at the end of the day—hours after imperfect trades have closed.

The next innovation? The market is waiting for a technology solution that will allow FX desks to electronically trade less-liquid products like forwards, swaps and swaptions. The counterparty risk and collateral involved gets complicated enough to require human judgment, forcing traders to deal over the phone. A digital solution would be welcomed by manufacturers, import-export companies and other nonfinancial companies that depend on FX traders to get the best exchange rates on merchandise and raw materials they will need in the future. In a year of turmoil, an imperfectly timed transaction can mean the difference between profit and loss.


The Innovators Of Foreign Exchange 2016

Type Of Innovation

12Sided Technology

Product Innovation

Automatic Programming Interface (API)

Bank of America Merrill Lynch

Process Innovation

Cross Currency ACH

Bats Global Markets

Product Innovation

Hotspot FX

BNY Mellon

Product Innovation


Cambridge Global Payments

Product Innovation

Enhanced User Interface to Cambridge Link


Product Innovation

Futures Trading on Velocity


Product Innovation

Currenex MidX

DBS Bank

Process Innovation

USD-Renminbi Cross Currency Swap

EBS BrokerTec

Product Innovation

EBS Live Redesign


Product Innovation

Electronic Communication Network (ECN)


Product Innovation

Google-like Search Engine


Product Innovation

Software Defined Network (SDN)


Product Innovation

Samba STEP

Shinhan Bank

Product Innovation

Multiple Foreign Currency Prepaid Card With MasterCard

Thomson Reuters

Product Innovation

FXall in Eikon for Corporate Treasurers

Wisdom Tree

Product Innovation

Dynamic Currency Hedged ETFS


12Sided Technology | Product Innovation

12Sided Technology launched an application programming interface (API) for FX traders in January 2015. The API sits passively on the network data acquisition (NDA) systems that trading desks use, categorizing all the data without having any impact on it. The API can distribute the data­ at 30-nanosecond intervals. 12Sided’s founding partners decided to develop the API after feedback from customers that it was the most useful component of an earlier NDA system. Their NDA connects traders with counterparties around the world. In addition, the NDA pares down the number of counterparties that FX desks have the option of dealing with by connecting the desks with trading venues that are already linked to multiple counterparties, making it faster to get favorable rates at low cost.

Bank of America Merrill Lynch | Process Innovation

Bank of America Merrill Lynch launched an online FX payment system that capability that leverages the domestic low value clearing systems found in dozens of countries around the world, such as the Automated Clearing House Network (ACH) in the US. The cross-currency ACH system allows corporate customers to make payments in 38 currencies and 76 countries using destination banks’ domestic clearing systems, enabling foreign-currency payments on the same platforms clients use for domestic payments. This lets them automate processing and manage payment flows, and it’s cheaper than the bank’s single-currency and FX wire payments. The product, integrated with the bank’s CashPro offerings and file-based payment platforms, is designed for “non-urgent, recurring transactions,” including routine company payments such as payroll, pension, insurance and utilities.

Bats Global Markets | Product Innovation

Bats, a US-based stock exchange operator, dove into the global currency market in March 2015 when it acquired Hotspot, an electronic communications network that matches cross-currency buy orders with sell orders. Hotspot itself was the first ECN in the institutional FX market, and industry watchers expect Bats to leverage Hotspot’s network to further innovate FX. Bats, which operates the largest pan-European equities exchange, has a track record for innovation in electronic equities trading. 

BNY Mellon | Product Innovation

BNY Mellon offers iFlow iQ models that guide currency traders with a streaming flow of short-term and long-term analyses of global currencies and other asset classes, intended to inform investment decisions. Last year, BNY Mellon updated its iFlow iQ models to focus on capital flows, an approach influenced by the findings of its recent study comparing two investment portfolios, each invested in several different currencies. One portfolio was built on investment decisions that took into account both flows and prices; the other considered only flows. The “flows-dominant” approach performed better.

Cambridge Global Payments | Product Innovation

Last year, Cambridge Global Payments introduced an enhanced user interface for its online system for booking FX transactions and processing international payments. Rebranded Cambridge Link, the new user interface gives clients access to all the banks the company deals with in some 170 countries through delivery channels from SWIFT and ACH to Single Euro Payments Area. The new interface incorporates Cambridge’s database of global routing and country regulations and offers detailed messaging to improve straight-though processing and speed of delivery and reduce undelivered payments. Cambridge Link also offers some industry-specific capabilities: for example, sanction screening, which warns if an intended transaction would occur in a country subject to international sanctions.

Citi | Product Innovation

Last June, Citi started allowing clients to trade FX futures on Citi Velocity, a platform that provides access to the bank’s proprietary research and trading functions. The ability to trade FX futures on the platform is part of what Citi calls “a significant investment” in the technology required to trade in derivatives. In another enhancement, traders can now access the platform at regional connectivity points, which can shorten the time for a trade to close.The latest version of the platform goes beyond its initial offerings in currencies, interest rate swaps and bonds, grouping FX seamlessly with other asset classes on just one desktop.

Currenex | Product Innovation            

Last year, New York-based Currenex launched Currenex MidX, a midbook digital engine that matches FX buy and sell orders with anonymity, hiding trader identity in prime brokerage trading. MidX pursues an anonymous central counterparty (CCP) model to address “fishing and following”—placing orders to test the market. MidX provides unique end-of-day identifiers to all counterparties, allowing traders to remain anonymous yet still adjust order attributes and matching preferences. 

DBS Bank | Process Innovation

DBS Bank has been at the cutting edge of trade in forwards, swaps and structured products denominated in the Chinese renmimbi, and is among the few banks that can provide pricing for large notional demand for China-US cross-currency swaps at attractive levels. According to DBS, one of its clients, a Chinese shipbuilder with a renminbi liability portfolio worth billions of dollars, used China-US cross-currency swaps to cut its renminbi liability cost in half.

EBS BrokerTec | Product Innovation

EBS BrokerTec, the electronic FX exchange and fixed-income business of exchange operator ICAP, announced in February that it is redesigning EBS Live, its FX market data service. The new EBS Live Ultra feed will provide better price discovery, more granular data and greater transparency for traders, delivered over a new binary protocol that will ensure simultaneous, efficient delivery to all traders. In April the company announced that it was adding a new nondeliverable forward in response to customer demand. EBS’s Fixing Against One Month service allows customers to trade two fixing swaps electronically across Asian and Latin American nondeliverable currency pairs.

FastMatch | Product Innovation

FastMatch, a technology company that runs venues for FX traders, introduced fully disclosed trading, in which FastMatch’s customers trade one-on-one. Disclosed trading allows liquidity providers to offer customized pricing to best suit each client’s specific needs and incurs lower costs than anonymous “many-to-many” trading, which can involve numerous counterparties on both sides. The company’s ECN uses market structure rules to make it easier for sellside FX clients to find buyers on a one-to-one basis. Independent matching engines in London, New York and Tokyo, offer geographically tailored market data, trades and midpoint values, the company says.

Kensho | Product Innovation

Backed by Goldman Sachs and Google Ventures, Kensho’s platform uses Google-like search engine, taking an innovative approach to mining sets of data through natural language queries. Traders don’t need to code-search. They can ask questions like, “What would happen to the dollar-euro exchange rate if Russia defaults?” Kensho offers FX solutions, but its scalable architecture is applicable to all asset classes, according to consultants familiar with the company’s technology. They consider it among the most potentially disruptive technologies in FX.

Lucera/Perseus | Product Innovation

Lucera Financial Infrastructures, founded in 2013, runs the largest software-defined network (SDN) in FX, Lucera Connect, which lets currency traders connect in real time with counterparties in seconds on a self-service, Web-based portal. Last year Lucera added capacity to its real-time packet capture system. Lucera also added Tokyo to the cities on its SDN in a partnership with Perseus, which operates a low-latency global fiber-optic network in Asia. Lucera’s SDN already covered Chicago, New York and London.

Samba Financial Group | Product Innovation

Samba Financial Group launched its Smart Treasury Electronic Platform. STEP is the first FX trading platform from a Saudi bank that provides real-time streaming data on rates and trades, 24 hours a day. The Web-based system allows Samba and other banks in Saudi Arabia to price, execute, confirm and manage currency trades. Enabling both automatic and manual pricing, the trading module’s features allow FX traders to monitor and manage transactions, mitigate risk and optimize yields in real-time. Samba integrated STEP in all its branches and online, and has since seen FX trading volumes rise.

Shinhan Bank | Product Innovation

In a tie-up with MasterCard, Shinhan Bank is the first bank in South Korea to offer a prepaid cash card that can carry as many as 10 different currencies. The Shinhan Global Multi-Card bears comparison with cash cards offered by banks in other countries. The card is not linked to the cardholder’s bank account, which minimizes the risk of accidental overdraft, or others form of fraud such as identity theft.

Thomson Reuters | Product Innovation

Thomson Reuters launched FXall in Eikon for corporate treasurers, combining several existing FX systems on a single platform. The new product combines the pretrade data, news and analytics of the company’s Eikon platform with the electronic trading capabilities of its FXall system. It also brings together about 140 liquidity providers on the FXall platform with a messaging community of 210,000 financial professionals on Eikon. Working within the Eikon desktop, Thomson Reuters’ corporate clients can make more informed trading decisions, use FXall electronic trading capabilities and access fully compliant STP for every trade.

WisdomTree | Product Innovation

Last year, WisdomTree launched a series of four dynamically hedged exchange-traded funds that invest in stocks around the world. These ETFs hedge against the currency risks of the markets where they are invested, but their asset managers automatically dial down on hedging when local currencies are not expected to appreciate against the dollar or the costs associated with hedging are high.


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