FX industry shows little appetite for single API

For the past four years, Citi has been working to fix what it sees as a problem with its foreign exchange trading services: a multitude of programming codes used to connect clients with its various services and products.

These so-called application programming interfaces (APIs) also differ between banks and other liquidity providers (LPs). But not everyone agrees with Citi that it is desirable, or feasible, to replace them with a single industry API. The worry is that doing so will stifle innovation by individual providers.

“LPs have unique selling points – such as algos, how they price products or how they accept orders – which give rise to significant differentiation,” says Hugh Whelan, who heads up trading platform EBS Direct, as well as EBS Institutional, an execution management system.

“The industry is complex and not every LP is the same, which naturally lends itself to having differentiation in API language and connections.”

The existing set-up at Citi is a microcosm of the FX industry. The bank’s clients have to use different APIs to access Citi’s various FX services, such as price streaming and execution algorithms. Likewise, connecting to each bank and platform usually requires using the LP’s own API or, as is more often the case, APIs. Managing all these different API links costs clients time and money.

“We’ve been working to develop as many capabilities as possible within a single API connection,” says Al Saeed, global head of electronic platforms and distribution at Citi. He adds that a single API will make it easier and quicker for clients to access all of Citi’s FX services and products.  

But the bank has bigger ambitions still. “I hope that we’ll eventually get to a point where we can set a standard for the industry by providing a very comprehensive API language for our clients,” Saeed says.

Uniform API standards would … enable users to quickly connect to different FX platforms and liquidity providers

Head of trading at a large buy-side firm

Citi is not alone in wanting standardisation.

The global head of trading at a European asset management firm says a standardised API is “preferable”.

The head of trading at a large buy-side firm agrees, saying: “Uniform API standards would help to reduce [LPs’] stickiness and enable users to quickly connect to different FX platforms and liquidity providers.”

Technically, such a standard already exists. The Financial Information Exchange API is widely used in the FX market to exchange pre-trade, trade and post-trade information. However, banks and platforms typically code on top of the Fix API in order to customise their services, as well as continually improve them and provide new features.

Tom Palmer, head of electronic FX trading strategy at Nomura, sees the merits of greater API standardisation across the industry, but says the existing diversity of APIs benefits clients through faster market data feeds and advanced order types, for example.

“If you had somebody coming in and trying to standardise all of this, then what’s the differentiation or the edge between venues and providers?” he asks, suggesting that, in that scenario, the only way to stand out against rivals would be to provide a bigger pool of liquidity.

“You’d perhaps start to see homogenisation and a narrowing of capabilities,” Palmer says.

Michael Shapiro, chief technology officer at MarketFactory, which helps FX market participants streamline their API connections into one, makes a similar point. “If anything, there’s an incentive for all of these LPs, venues and platforms to create more APIs, not less,” he says.

Pie in the sky?

The pros and cons of a single API aside, market participants say standardisation will not be easy to achieve.

One of the biggest hurdles is the large number of LPs in the FX market. For instance, MarketFactory provides links to more than 60 LPs, including bank and non-bank venues.

“Knowing the patchwork ecosystem of FX platforms available today, I’m not surprised standardisation is taking longer than hoped for,” says the head of trading at the European asset management firm.

Switching to a single API would require collaboration between all the various LPs, “which could be years away”, says David Faulkner, who heads up sales at Fluent, provider of API management and other services.

Another obstacle to adopting a single industry API is the technological challenge it would pose both for LPs and clients, according to Alan Schwarz, chief executive at FXSpotStream, another provider of API connections.

“[It] is a huge undertaking,” he says. “It’s a very large project which I don’t think will happen in the near future, but at the moment we at least have everybody using Fix. It’s not a bad idea if we had one API for all liquidity providers – I’m just not sure how practical it is in reality.”

Nomura’s Palmer also points out that clients vary in their technological capabilities. He says Nomura uses three different versions of Fix API partly because not all of its clients have been able to transition to the latest version and these clients continue to use older iterations.

“We have three different flavours of Fix that we offer today and need to be cognizant of our clients and their ability to upgrade to the latest spec. Not all our clients are able to code to that latest spec because of their own internal intricacies,” he says.

Ten years ago, FX clients were probably only connected to five APIs – today it’s more like 20

Eugene Markman, MarketFactory

The pressure to move to a single industry API has also been reduced by the emergence of firms like MarketFactory, Fluent, FXSpotStream and smartTrade Technologies. Rather than managing multiple API links to different LPs themselves, FX market participants can connect to these vendors via a single API and access a range of bank and non-bank venues.

“Over the last few years there’s been a real push to reduce the frictional costs of trading through accessing multiple vendors and all of the additional services that are required to maintain an electronic FX channel,” says Whelan at EBS. “So we’ve seen this cottage industry of API managers continue to grow as it’s very cost-effective for clients.”

He adds that he often advises EBS clients to use API connection managers as they are a cheaper option compared with handling the connections themselves.

Eugene Markman, chief executive of MarketFactory, provides an estimate of respective costs. Managing an API connection could easily cost a client $1 million a year, he says, as the client is likely to need three developers in each time zone to manage updates to API connections by LPs, and will have to pay for hardware, software and data. Outsourcing this to a vendor like MarketFactory would cost half that amount.

The costs – and the available savings – can rack up quickly in today’s crowded LP market.

“In the beginning, when people were only connected to a handful of APIs, clients having to manage multiple API connections wasn’t a big problem,” Markman says. “Ten years ago, FX clients were probably only connected to five APIs – today it’s more like 20.”

Editing by Olesya Dmitracova