What’s next for FXSpotstream?

Departure of founder could herald a shift from the venue’s no-brokerage model

When FXSpotstream (FSS) launched over 11 years ago as a bank-backed spot foreign exchange price aggregation service, it set its sights on disrupting the public trading venues.

It initially pitched itself as a market utility whereby clients could place orders through a single API connection and have them routed to their chosen liquidity provider. It would also charge zero brokerage fees either to its clients or to liquidity banks.

At the time of its launch some questioned how sustainable its business model was. “Nothing can exist for free for long,” one market participant stated in 2012.

But the venue has been largely hailed as a success, providing a way for banks and clients to curate bespoke liquidity pools and cherry-pick who can see their trades. Furthermore, its no-brokerage model won over many LPs that have become tired of high transaction fees on multi-dealer platforms.

FSS was one of the five venues that Citi chose for trading FX spot in 2020 after the bank decided to ditch platforms that did not meet its expectations around liquidity, transparency, stability and value for money.

In December 2021, FSS made its API available to all of its liquidity banks’ spot FX algos. The result was a huge jump in volumes. Average daily volume (ADV) increased from $42 billion in December 2021 to $70 billion in March 2022. It then hit a new high of $73.3 billion in September, and as of February 2023, ADV stood at $62.9 billion.

But now, questions have been raised about the venue’s future following the unexpected announcement from its founder and CEO, Alan Schwartz, in November that he was resigning on February 1.

In a LinkedIn post, Schwartz said: “Will keep the drivers for this moment to myself for now, but time to move on and very much looking forward to the next chapter… We have been extremely lucky to have the support of so many clients and vendor partners around the world as we have built a truly great business and brand from scratch. I thank every one of our clients and vendor partners who have been with us for so many years.”

Now read what you will into that statement, but as the venue moves from start-up growth mode to profit-making business, some important changes may be coming for users.

The main one kicked around, dealers say, was a possible change in its revenue structure from subscription-based to the standard brokerage-based model.

The subscription model – where everyone pays an annual fee – helped it to generate major volumes from its liquidity banks. For some of the bigger players, it also represented significant cost savings in their brokerage-per-million.

This may have worked when the venue was in growth mode, but as it became more mature, inequalities began to show for those that did not execute as much business through it. For smaller-sized regional banks, barriers to entry emerged.

It seems, however, that FSS may stick with its original subscription-based model as it seeks to fend off rival platforms hoping to entice dealers back onto their venues.

While FSS continues its search for a new CEO – a position held on an interim basis by its chief technology officer Tom San Pietro – it potentially faces competition from Reactive Markets, a newcomer set up by a group of high-frequency trading tech specialists.

Like FSS, Reactive Markets’ Switchboard product is a single API offering ultra-low latency connectivity to a network of LPs for trading on a fully disclosed, bilateral basis. It also does not charge commissions or fees and classifies itself as an “open network”.

Where Reactive Markets differs from FSS is that it has removed the barriers to entry for smaller-sized regional banks by allowing a wider selection of users to price, the firm claims. Impressively, it has over 20 tier-one banks and electronic market-makers for clients to access.

The growing popularity of both FSS and Reactive Markets signals a clear shift towards relationship-based trading and bespoke liquidity pools. Some banks have previously noted they can execute 70% of their spot FX trades via bilateral feeds.

As these venues eye expanding into more FX instruments, their prominence could become even greater.

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