Technology development of the year: Fenics

Asia Risk Awards 2017

John Crisp, Fenics

New opportunities are opening up in the foreign exchange options market. Major global banks are pulling back their liquidity provision, leaving space that many local players are eager to occupy. Furthermore, the market is going the way of spot trades and becoming more electronic, enabling those with the technology to offer new and more flexible services. This is where Fenics comes in.

Fenics has long been a niche provider of forex options analytics and workflow, which is widely used across the region. In response to the market changes, it has developed a technology platform to support the new electronic activity, and in doing so has created a significant opportunity not only for its customers but for itself as well.

Traditionally, Fenics clients have been forex options specialists at tier-two and tier-three banks, using its desktop analytics and workflow for pricing and risk management. The system has typically been installed in-house and has a sophisticated front-end designed for forex options professionals. Now many Fenics users want a simpler front-end that they can make available more widely to less-specialist end-clients, such as private bank relationship managers and retail end-users. They also increasingly want access to multi-dealer platforms and other venues for liquidity and best execution. And they want to automate as much of their forex options workflow as possible for cost efficiency, to enable them to grow their business.

The largest global banks have built this functionality themselves, but few others have the time or resources, which is why they looked to Fenics for help. The vendor’s response is Fenics Trading Solutions – a set of technologies to support forex options trading activity in the electronic era. For the company’s traditional customers, Fenics TS offers the ability to automate their workflows. For example, banks tend to bucket their end-clients to allocate margin in the spreads they quote. TS can automate this process, whilst also allowing users to specify where they might want manual intervention for certain products.

“The bank might be happy to auto-quote G10 currency pairs based on Fenics’ maths, but want to check an emerging market currency pair before making it available as a traded price,” says John Crisp, head of product at Fenics who is based in London. 

TS also enables traditional Fenics Pro clients who have been using the product for generating core pricing to now put their prices electronically on to their own portal as well as on to multi-dealer platforms. TS provides the required adapters and APIs, or application programming interfaces, to support this. “This means the bank doesn’t have to engage its internal IT team to build the adapters for each venue,” says Crisp.

Although Asia does not have the equivalent of Europe’s Market in Financial Instruments Directive, the growing regulatory focus on best execution is already affecting banks’ operations in the region. “Larger banks in Asia tend to build systems that match the most stringent regulation globally, which for a lot of their trading business is Mifid. Therefore, they want technology that can support requirements like audit and record keeping, which TS can provide,” says Crisp.  

Fenics TS also help banks with their new electronic trade flows. If a bank is taking on the market risk of its flows itself, TS will direct it to Fenics Pro – or any other risk management system that banks want to use. Or if the bank does not want the risk – because the trade is too large or the product is exotic or it is in a currency pair where the trading desk does not have approval to take on risk – and wants to offset it in the market, TS provides the workflow and connectivity to undertake this.

“TS allows the bank to electronically take the request, reverse the direction, put it out into the market and execute the two deals at the same time,” says Crisp. The workflow for these back-to-back deals can also be used to mitigate risk at the portfolio level. “If a bank has lots of small deals coming through, it won’t want to back-to-back every trade. TS allows them to accumulate the trades and build up a net position, and then offset their overall delta and vega,” says Crisp.

While Fenics TS was initially developed to meet the needs of its traditional clients, it is also opening up opportunities for the vendor at the upper and lower ends of the market. “The top 15 banks have built their own kit, but the next tier down, which are still very big institutions, mostly haven’t got the budget or the desire strategically to build everything for themselves. Fenics TS allows them to complete their offering to compete with the traditional market-makers,” says Crisp. And the flexibility of the platform lets them implement it in a way to suit their business. “They may have a quant team and want to use their own maths rather than Fenics’: they can plug their models into the Fenics TS infrastructure,” says Crisp.

One of China’s biggest banks is a long-term user of Fenics Pro and has recently adopted TS. “We are facing more and more client quotations and frequent regulatory updates, as well as new products and other market changes. The intelligent pricing engine and dealing function of Fenics TS is helping us to react efficiently, and also makes us well-prepared for further market evolution,” says a senior executive at the bank. The bank is currently expanding its deployment of Fenics TS for an internal pricing distribution project.

Small banks and money service brokers that hedge their risks can use TS to help them manage their workflows. “These sorts of clients may not want to use Fenics Pro, but they still want to carry out trades and back-to-back them. We can make this process more seamless for them,” says Crisp. “Traditionally, our sweet spot was large regional and medium-sized banks. Now TS is moving us along the food chain to market-making banks and down to smaller banks and other institutions.”