Global FX Markets Stay Connected05.27.2014
The global FX spot market is benefiting from technology that consolidates fragmented trading onto a single platform, using an adaptive smart order router (SOR) to identify liquidity and facilitate executions.
Lucera Financial Infrastructures has launched a platform called LumeFX intended to provide rapid connectivity to the FX spot market. “This marketplace is becoming more electronic, and as you’re getting more liquidity providers and more fragmentation, the actual computational problem is increasing,” said Jake Loveless, CEO of Lucera Financial Infrastructures. “These legacy systems have trouble keeping up, and LumeFX is designed to scale as the business and traffic grows. It’s an entirely different way of looking at the problem.”
Cantor Fitzgerald has been using the system for about a year and a half. “LumeFX gives us more control over our FX spot trading and helps us to better understand the best liquidity provider for a trade and to better manage our order flow with measurable efficiency and accuracy,” said James Reilly, senior managing director and global head of FX sales and trading at Cantor Fitzgerald Securities, in a statement. “LumeFX and Lucera manage all the infrastructure and networking, so we can focus on optimizing our order flow.”
According to Loveless, Cantor is running its entire FX desk in production on LumeFX. “Cantor is running an agency desk where they’re taking their own internal flow and their customer flow and their liquidity relationships and running a business on it,” he said. “We license LumeFX to companies who are looking to spin off their own pools of liquidity or their own internal matching engines, and manage their own liquidity relationships.”
Although FX is the largest and most liquid market, it is extremely fragmented. Historical microstructures like “last look” pose a unique challenge for liquidity takers in understanding real versus phantom liquidity. “If you’re aggregating liquidity from 10 providers of liquidity, those bids and offers that you’re seeing are not guaranteed to be actionable, because the liquidity provider has the option to say no,” said Loveless.
LumeFX estimates the probability that liquidity is actionable. “If you say, ‘I want a 95% fill rate for every hundred million I send in,’ LumeFX shows you a market data stream whose underlying liquidity we estimate as having a 95% probability of being filled,” said Loveless. “The trade-off is the higher you set the fill rate, the wider the spread goes. The trader who’s very sensitive to time gets a really high fill rate, and the trader who’s more sensitive to price but is willing to take a lower fill rate, gets a really good price.”
LumeFX is co-located in Equinix facilities in New York (NY4), London (LD4) and Chicago (Cermak). Each platform participant runs on its own dedicated machine instance designed to maximize performance and eliminate central-server bottlenecks.
“LumeFX is run as a service, so if you have credit, customers, and liquidity partners, you can greatly optimize your FX business,” said Loveless.
LumeFX is engineered to help dynamically allocate liquidity, manage routing parameters and control cost on a per counterparty, per currency pair basis.
“The classical model is that you have a central server and all the inbound market data and all the outbound market data goes through this one central server,” Loveless said. “LumeFX is totally different. Every single participant in the market, be it liquidity provider or taker, is operating within their individual localized instance of LumeFX, each being a part of a larger scalable set of distributed but interconnected applications.”
Feature image via iStock
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