Every hub starts out with a simple, beguiling argument – connect to us, and we’ll do the work of connecting you to everyone else.
Except it doesn’t always end up being that simple. Keen to keep its customers, the hub may insist on long-term contracts; in an attempt to justify price hikes, it may bundle other services with its basic promise of connectivity; and, standing between its customers and a wider market, the hub can also become a bottleneck.
All of these gripes can be heard in the fixed income market, where banks and buy-side firms want no-hassle access to an increasingly fragmented galaxy of trading venues, and are not keen on building and maintaining their own web of bilateral pipes.
Enter TransFICC – a London-based startup launched in March 2016, with plans to keep connectivity simple. And cheap.
The firm has signed two global investment banks as its first clients – it refuses to name them publicly, but Risk has spoken to both. It is in full production with one of these dealers for broker venues including BGC, GFI, TP Icap and Tradition. The second dealer is focused on access to request-for-quote venues, including Bloomberg and Tradeweb. A further 10 banks and two buy-side institutions are currently testing the service.
Company founder Steve Toland, who leads a team that largely met in their previous jobs at LMAX Exchange, says: “Customers are looking to migrate internal systems away from incumbents, take advantage of new trading venues, do upgrade work, or all of the above.”
TransFICC’s 14 existing connections also include LiquidityEdge, MTS Cash and UBS Bond Port. The firm is prioritising new links to BrokerTec, MTS Bondspro, BondVision, Neptune and Boerse Stuttgart.
It aims to improve on existing services in a number of ways. The first is flexibility – instead of locking customers into deals of three years or more, which then turn into drawn-out negotiations at renewal time, clients can switch the service off with a month’s notice.
The head of credit e-trading at a European bank says: “For every three markets we connect to, one doesn’t ever make it and becomes a wasted project, one ticks along and is just about kept, and one picks up. TransFICC is ideal for speculative moves of business going into new markets. We can see if liquidity and volume is going through that market. If not, we can cut our losses and go.”
The head of rates IT at a US-based bank says: “It’s like Netflix. I pay a monthly fee and if it doesn’t work I turn it off.”
TransFICC says its service can be centrally hosted via Equinix – a co-location data centre firm – or delivered through the cloud, which reduces hardware and software costs significantly.
The software-as-a-service approach also makes it easier to upgrade when venues change their application programming interfaces, compared with the enterprise systems of legacy firms, the firm claims.
The speed of software releases, at weekly, is claimed to be more regular than the cycles of incumbents, while a normalised price/order timestamp to the microsecond level provides a granular audit trail that allows users to document attempts to obtain best execution.
The firm also delivers improvements in latency by using Aeron technology protocols capable of encoding, delivering and decoding between 20 and 30 million messages per second – ahead of rivals who measure their speeds in milliseconds rather than microseconds.
Finally, TransFICC focuses solely on the business of providing market access. This allows dealers to decide for themselves how to route and aggregate orders and frees them from paying for pricing, trading and risk management applications that some competitors are accused of bundling into their platforms.
“TransFICC has simplified its offering to the value-add part by providing the fastest and best connection to the market, because as a bank I want to decide how I route and aggregate orders to give me more control,” says the US head of rates IT.
The purity of the model helped the firm win initial seed funding in October 2017 from venture capital firm Illuminate Financial and Commerzbank’s fintech incubator, with a third investment from Citi in August 2018.