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Strategy Talk: Building a “One-Stop-Shop” for FX

07:00 December 6th 2016 in Media, Videos

Strategy Talk: Building a “One-Stop-Shop” for FX

Carlo Koelzer, CEO of 360T and global head of FX at Deutsche Börse Group, talks to Galen Stops, deputy editor at Profit & Loss, about his plans for building a central limit order book and why central clearing is now a viable method for alleviating credit risk in FX.

Following its acquisition by Deutsche Börse Group last year, 360T informed its clients that it planned to add a central limit order book (CLOB) and futures trading functionality to its platform.

Although the CLOB is due to go live in the first quarter of next year, they are notoriously difficult to launch because their effectiveness for trading firms often relies on having substantial liquidity available in the order book. Thus, there is the “chicken and egg” problem of how to build up that liquidity in the first place.

But Koelzer argues that 360T’s existing user base, which includes both buy and sell side firms, gives it an advantage when launching its CLOB.

“There’s liquidity from both sides, we have the customer base already and we have the liquidity providers that have an interest in that. So to a degree it’s not about acquiring new customers or new liquidity providers, it’s about providing a service to our existing customer base that is not only executable stream and RFQ but also a central limit order book where you don’t have to go through the bid offer spread and where you can place an order,” he explains.

Discussing 360T’s post-merger strategy, Koezler says: "We have a much broader mandate now.”

He adds that by offering both listed and OTC FX products accessible via a range of different trading styles in one place, with the ability to also centrally clear these products, 360T aims to become “the one stop shop” for firms trading FX.

More details about this strategy can be found in the recent in-depth Q&A with Koezler, where he discusses the importance of trading platforms building critical mass amidst the changing landscape of the FX market.

Although it has long been predicted that certain FX products could move to a centrally cleared model, in the absence of a regulatory mandate to do so there has been limited moves in this direction.

However, Koezler points out that the reason why central clearing has not been widely adopted in FX until now is because it was more costly than the alternative solutions and came with additional margin requirements. But he says that new capital requirements are making bilateral trading more expensive, while FX prime brokers are raising their fees. Therefore, he makes the case that central clearing is increasingly becoming a commercially viable alternative to prime brokerage or bilateral trading.

You can watch the full video here: