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FX-MM DECEMBER 2010 - JANUARY 2011 ISSUE

THE FUTURE OF FX – FAIR TRADING TECHNOLOGY

Fair Trading Technology’s T3 Execution Bridgeprovides a transparent connection to the ECNmarket. Through provision of a transparentorder reporting system it enables users toverify all their transactions with their brokerand know that they are clear from anymanipulation or indeed any other unethicalbehaviour.

The technology has been designed bytraders, for traders who want goodtransparency, ECN liquidity and fastexecution while using their preferredplatform. In addition, brokers adopting thesolution have the advantage of taking onzero risk as it only allows straight throughprocessing (STP) of trades. This ensures thatthe long-term business interests of brokerand trader are aligned.

Interestingly, McLean Van Cleve, ChiefSystems Engineer at Fair Trading Technology,says that the T3 Execution Bridge wasactually created for use within FTT’s owngroup and not originally intended to be abusiness proposition. He says: “We realised along time ago that for our trading we neededto be in total control over all thecomponents of this solution, and that wehad to find reliable liquidity.”

FTT chose touse Dukascopy Bank

because the model employedwas not to take the other side of the

trade, but instead to pass all the tradesthrough into the open market, bringinggreater transparency to the whole process.Van Cleve adds: “People get up in armsabout brokers’ taking the other side of theirtrades but somebody always has to take theopposite side of a trade, otherwise themarket wouldn’t work. When it’s yourbrokerage however, that is a huge conflict ofinterests in our eyes because it providesincentive for unscrupulous behaviour, assome recent fines in the FX marketdemonstrate.”

“Initially, our idea was that if youprovide transparency, you are giving clientsproof that you are providing a fair trading

environment, with no trade manipulationwhatsoever.”

Can a broker be profitable if the client isprofitable though? This is certainly how itshould be. The broker should not have theother side of the trade if there is a conflictof interests. By being transparent FTTbelieves it can show the client that it isoperating in the fairest trading environment.

The T3 Execution Bridge was opened upto the public in August 2010 but the firmhas been using it and developing it forseveral 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 willbe used as the basis for a new standard forthe FX industry and believes that greatertransparency and this kind of self-regulationcould negate the need for more governmentregulation. “With greater customertransparency there is no incentive to doanything unscrupulous but at present thetypical brokerage model is not unlike acasino,” he adds.

The huge growth in FX trading in theretail market is driving providers to offergreater levels of sophistication, more akinthe institutional market.

“The typical bridge model that is beingused in this industry is quiteunsophisticated, relative to the phenomenal

The future is clearThe official launch of the T3 Execution Bridge by FairTrading Technology (FTT) last year brought anunprecedented 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.

The T3 Execution Bridge wasactually created for use within

FTT’s own group and notoriginally intended to be a

business proposition.

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THE FUTURE OF FX – FAIR TRADING TECHNOLOGY

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FX-MM DECEMBER 2010 - JANUARY 2011 ISSUE To subscribe online visit: www.fx-mm.com

achievements that have been made usingcloud computing and virtualisationtechnology to speed up the process,”comments Van Cleve.

Furthermore he says that by bringingprogrammers to the market that had noexperience of trading has actually enabledthe company to remove blocks. “As they hadno idea of the limitations that existed, theywere actually able to go round them.”

For example, for quite a few companies,most bridges were only able to access top ofbook, or the first level of liquidity. This was‘solved’ by simply leaving the order until thetop of book had sufficient liquidity. “In oureyes this was just wrong as it almostguaranteed slippage so the first thing we setout to do was allow true access to multiplelevels of liquidity and return an aggregateprice.” Additionally, by developing the first

two-way bridge, MetaTrader became able toreceive trades as well as send them. Thisachievement removes the discrepancies thatmany users of MetaTrader bridges have beenplagued by. In addition, the proper handlingof partial fills was enabled.

Says Van Cleve: “Change within theindustry is more likely to come from thegrass roots. When traders, and clients ofbrokers, start voting with their accounts themessage will soon become clearly heard.”

One FTT customer, an offshoreproprietary trader, says that T3 replaced abridge being used at another brokerage lastAugust, and saw improved trading results. Hesays: “The first way, although I cannot prove

it conclusively, is due to lack of pricemanipulation. The price feeds in a lot of theMetaTrader 4 clients I've used before wereobviously smoothed and often manipulatedeither via spreads or spikes. Major newsevents at other MetaTrader brokerages wouldresult in huge spreads and gaps due to‘illiquid conditions’. This hasn't happed withthe FTT/Dukascopy bridge to any discernabledegree. In fact it's quite the opposite. Thesetimes often prove to be very liquidconditions.”

Secondly, he adds, there has beenimproved connectivity. Because he uses a lotof automated strategies in his trading, byhosting them with FTT, putting his systemsin the same datacenter as the FTT serversand the banks providing liquidity has givenhim faster execution times. He says: “Ialways get in trades and don't get orderrejections but I'm unable to tell if you if it'sthe available liquidity or if the bridge itselfis superior to the other ones out there or ifit's a combination of both factors. One thingis certain though. It works very well.”

Van Cleve adds that T3 is continuallybeing tweaked and improved with newfeatures being added as they are developedand faster execution times sought to ensureFTT remains competitive, but in terms oftransparency he hopes that order reportingwill be changed forever and that the industryas a whole will be forced to move towards amore transparent model, or have customersvote with their feet. �

With greater customertransparency there is no incentiveto do anything unscrupulous butat present the typical brokerage

model is not unlike a casino.

From left to right - Unknown, Tim Haman CEO, McLean Van CleveChief Systems Engineer, Sven-Erik Carlsson Executive Sales Director, Fair Trading Technology

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