In the wake of the UK's Brexit vote which sent markets into a spin earlier this month, foreign exchange is still top of conversation as the impact of the decision to leave the EU is played out across the financial markets. While the nature of foreign exchange makes innovation tough, emerging technology like blockchain promises to totally transform the way currency moves.
Winner in the category of 'Innovation in Trading Systems' at the Fintech Innovation Awards this year was State Street Bank's FX Connect product. Here we talk to Paul Alves, senior managing director at State Street about how technology is impacting the business.
Why has it taken so long for disruption to come to this industry?
Having been in this business for a long time, we often smile when we hear that the FX business is late to the “disruptive technology” trend. Foreign Exchange trading was innovating for years before the term became fashionable. Comparisons to the disruptions seen in central exchange-based markets, which came much sooner, are usually the yardstick by which people consider the FX business to be ‘late’ to the disruption game; but like all OTC markets, it’s simply harder to force the adoption of technological standards when there is no central meeting place to control standardisation. It could be argued that the innovation seen in the FX market, given its non-central nature, is truly remarkable, when compared to the centralised exchanges.
What are the key ways recent technology shifts have changed/will change this industry?
Innovative methods within the structure will continue to evolve, but it’s important to remember that the structure of the market hasn’t fundamentally changed. Counterparty Creditworthiness is still the underlying fabric of all foreign exchange trading, and technology is built to suit. But we may be approaching a period of time when the structure itself is changed by innovation; where the safety of real time settlement through blockchain may innovate the very nature of counterparty credit. Should this occur (a leap of faith for some), the definitions of market maker, risk taker, and indeed investor, will distill down into “participant”. FX Connect plans to still be the dominant place for participants to meet.
What problem is FX Connect tackling?
A better question is, “What problem is FX Connect not tackling?” Our customers are in the middle of an unprecedented period of regulatory and technological upheaval, amidst a super-competitive landscape being bulldozed by economic uncertainty, cost cutting and globalisation. FX Connect is deep into a strategy of continuous improvement to stay ahead of all these catalysts, to be the partner of choice to our customers, and frankly, to do everything we can to help them focus on their key competencies, whether that’s being a market-making risk manager, or an asset manager, care-taking the world’s savings. Grouping all these problems together, the problem FX Connect is tackling is anticipating the future of foreign exchange trading.
Why is there a need for it?
If you think of the advances in technology in the past 20 years, the one theme that applies across all that time is that the velocity of innovation continues to increase. Applying our efforts to innovative ideas – to lead and not just keep up - comes at a heavy price if we don’t anticipate what our customers will need in the years to come. More than any other time in our history as a platform, those needs are heavily skewed towards regulatory compliance, execution excellence and standards of behavior.
What inspired it in the first place?
When FX Connect began operation twenty years ago, it was built as a simple connectivity mechanism to help portfolio managers automate their workflow, to focus on their core competencies and to give them a tool to minimise operational risk. That inspiration is still at the core of FX Connect today, but it’s a core surrounded by the rings of yearly growth and experience.
Ideas versus execution: What does it take to makes great ideas reality in a bank?
Whether a technology enterprise is owned by a bank, or a news service, or an exchange, we all have the same problem: having a vision, trusting in its commercial viability, proselytising that vision, and bringing that vision to market with the correct use of resources. Speaking as a dominant player in the FX Market, we can assert that FX Connect has benefited by being owned by being bank owned.
What are the most important lessons the team has learned building FX Connect?
The culture at FX Connect is continuous learning, by continuously listening to what our customers are saying. It’s a culture that was hard won by treating both success and failure as learning experiences; asking the questions, “What did we start out to achieve? How did the vision evolve? Did we fulfill our promise to our customers?” Whether the answers are good or bad, they help you move forward through learning.
What are the qualities of a kickass startup team in your eyes?
One of our customers recently told us of an unnamed competitor who visited their offices with a very slick new façade, and promises to be better than FX Connect. He told that competitor that FX Connect will retain its value because “every time you think you’ve caught up, you realise FX Connect has moved the goalposts”. This is because FX Connect is a startup in disguise. Comfortable is a condition we try to avoid.