B2B Connect
FairEx targets both the B2B (mostly banks to banks) and the B2C markets. FairEx B2B platform is the only web-based FX system that could empower the quick formation of Interactive FX trading communities. It is the first of its kind full-fledged FX exchange with comprehensive risk, credit and collateral management system all intelligently packaged into one easy to use system that allows any number of market makers and market takers to co-exist in the same cyberspace. Banks are able to trade on current credit line structure that exists among banks, but each participating bank undertakes the legal obligation to settle each trade done on the system. This exchange primarily serves the regional banks, brokers and non-bank financial institutions, as well as the existing interbank dealers, which are mostly the larger global banks
The First True FX Exchange
SuperTrader, the most comprehensive orderbook management system on the market, offers a detailed trade reporting and management solutions which can easily be implemented for the individual trader for the global orderbook management. This versatile set of tools offers the clients the ability to capture orders & trades automatically, monitor risk, collateral and managing orders & trades with its unique built-in filtering mechanisms for selected parameters. The order management functionality allows the trader to monitor orders against market prices and set each for execution, assignment or cancellation at the click of a button.
This is the first true FX exchange over the internet. It is the first to utilise streaming, executable prices in an interactive manner. True to the spirit of an exchange, a customer always deals on transparent rates that are displayed on the exchange without having to ask for quotes. The word exchange has been loosely used by many internet companies who operate marketplaces, like for example, chemical exchange, plastic exchange, paper exchange, steel exchange, just to name a few. These exchanges are nothing more than procurement websites. Some are simply bulletin boards for companies to post their prices. In terms of executions, they mostly employ the RFQ (Request For Quote) mechanism, i.e., when a customer needs a price, he will request for it and wait for the quotation. There is significant lag time between RFQ and when the quote comes back and dealt on. In the case of foreign exchange, this is a no-no, as foreign exchange prices fluctuate rapidly, and transactions must be executed and confirmed instantly. FairEx thus employed a totally different streaming mechanism, which cuts down the number of steps by half, and give customers a totally unique and satisfying user experience.
By achieving super high speed and maximum throughput, FairEx was able to move FX trading from the traditionally phone based executions to full-fledged exchange traded mechanism. FairEx solved the technical problem by employing the latest technology whilst painstakingly optimising the data package for high speed data transmission.
Through many months of continuous research and development, FairEx successfully integrated into Deutsche Bank, Citibank and Goldman Sachs global pricing engines. Together, these 3 banks control about 25% of the worldwide foreign exchange market. They now function as a round the clock clearer for the FX transactions in the B2B system.
Special Features of the B2B exchange
The interactive B2B Exchange allows the banks to counter bid and counter offer. This means that the traders don’t have to be a price taker on the market prices shown in the exchange by these super banks, but instead can also participate as market makers to quote their own buying and selling prices. To facilitate trading only among accredited participants, the system allows easy creations of user-defined "in-group" and "out-group". Trades can only occur among the members of the "in-group", and everybody else are automatically disallowed. We build community by providing the facility to integrate the various "in-groups". This results in a larger "ingroup" and eventually, forming a larger exchange.
Why the exchange must exist
Although the exchange can operate independently as a virtual dealing room for all the banks, the exchange also serves another most critical function, which is to power up the banking and broking network that is hooked up to the exchange. Without the exchange, where are the banks and brokers going to get FX market prices from? These banks and brokers depend on market information in order for them to make a market in their own websites to service their clients. Without those prices, the website is practically useless.Imagine what would happen when the stock exchange didn’t exist. Would any stockbroker be able to operate a stock trading website? Definitely not! The FX exchange thus has to exist. It provides non-stop liquidity for FX. It serves an indispensable function.
Furthermore, the existence of an exchange opens up small size trading. Previously, when all trades are handled on the phone, dealers are very choosy about which client’s phone call to answer. Generally, smaller trading sizes are being sneered at and in many cases,completely ignored. Only bigger trade sizes are being entertained. There are many reasons why this was the case. One of the key reasons is because bigger trades tend to be more profitable, and since the dealer’s time is precious, and very expensive, he has to prioritise whom to service. The smaller clients are thus left out. The phone based foreign exchange business is thus not scalable.
However, with the opening of an exchange, one finds that even the smallest sizes are being taken care of and not discriminated against, as the exchange is fully automated on a 24/7 basis and does not require human dealer help. We are thus seeing a big push towards smaller sized trading, trades that are previously not seen at all, or were turned away have been very common now. FairEx has therefore opened up a new market. FairEx is growing the pie.
A derived enhanced competitiveness for the smaller banks
FairEx B2B exchange links straight to the internal pricing engines of some of the largest global banks in the world. This includes Deutsche Bank, Citibank, and Goldman Sachs. By linking directly into the internal pricing engine of these banks, we are able to derive the pricing capabilities of these global banks and first put into the FairEx B2B exchange, and then further redistribute out and created derived pricing mechanism for the smaller banks and brokers. This give them a capability that they otherwise either will never have, or will have to spend tens of millions to develop, test, let it mature, and subsequently manage. It requires the scale of a super bank in order to be able to do it. A smaller bank either does not have the resources to do it, or even if they have, they will lose precious time trying to do it on their own and thereby losing market share, to the extent that their own survivals will be seriously threatened.
The BConnect banking / broking network
FairEx BConnect is also a complete web based solution for banks and brokers to provide B2C e-commerce solutions to their downstream clients. Each bank or broker who takes up the FairEx BConnect solution can offer its own privately labelled brand of FX trading and risk management platforms. The target customers for the BConnect solutions are distinct from the members of the exchange. They may include corporate treasurers, CFOs, retail self-traders, subsidiaries and branches of companies.
For the B2C model, we require that each bank perform due diligence on its customers and bear all the risks of their interaction with their customers. Our system allows the banks to track their customers’ collateral level on a real time basis. Both the banks and their customers will also benefit from immediate online trade confirmation as well as having free access to an advanced client portfolio management system, client collateral management system and a range of high quality financial analysis news and services.
The B2B exchange is the main enabler for the B2C market. Just like the stock exchanges, the FairEx B2B is an FX exchange. FX trading has become more efficient with the invention of this FX exchange, just like stock trading has become more efficient with the advent of the stock exchange. The FairEx B2B powers the B2C system with prices derived from the exchange, and serves to clear all customer orders.
Each BConnect system is fully customisable by the broker to fit his needs. In particular, each system allows the broker to modify the exchange prices by adding a spread over it.There is no standard agreement on what the spread is and thus there is plenty of room for customer differentiation in order for the broker to increase profitability.
The B2C and B2B are linked up, all via the internet. Traditionally, an order that comes in from a customer on the phone has to be serviced by a broker, but now, the order can come through the B2C website and immediately be executed in the exchange, bypassing all human intervention. No more broken link. The B2B marketplace thus facilitates the growth of the B2C and allows each Bank to build up its customer base without the concern of technology. With reduced dependency on human sales and dealers, and the existence of a convenient channel to offload the risk of clients’ orders, banks can expand aggressively to take in new customers.
The gatekeeper function produces a win-win-win formula
The FairEx patented B2B2C Connectivity solution is conceptually very simple. FairEx B2B is the exchange, while the FairEx BConnect is the broker dealer system. Between the B2B and B2C, they are linked electronically, but at an arm’s length. The B2B2C connectivity essentially passes information from one system to another seamlessly, but clients are separated from the exchange by the brokers. The clients will have no direct access to the exchange, and the relationship with the clients continues to be maintained by the brokers themselves. It is in this way that the broker acts as a gatekeeper, an intermediary, which it always has. This is essential because the brokers know the clients and need to maintain relationship as well as perform critical risk control functions, whereas the exchange would concentrate only on the wholesaler-distributor function.
The participants in the B2B exchange are exchange members, typically, the banks and brokers. The B2C is a client website, a storefront for the bank or broker to service his clients. The clients are not allowed to be a participant in the exchange, unless of course,the client graduated and qualifies as a member of the exchange at some point in time.
The gatekeeper function and relationship between client and broker is therefore maintained. Nothing is changed. Furthermore, this is the wholesaler-distributor-client relationship that results in a win-win-win situation.
The FX exchange will face strong resistance or possibly even fail if the players, both banks, brokers, and their clients are all in the same exchange without segregation. This breakdown of barriers, the flattening of the different layers with disregard to the relationship between different layers of players ultimately will cause the exchange members to boycott the exchange and cause it to fail. FairEx B2B exchange has avoided this pitfall. A simple example we can use as a guiding principle is to look at the stock exchange. The stock exchange is owned by a number of exchange members, each of whom runs a stock e-trading website. The stock exchange is also fully capable of operating its own stock e-trading website. However, if it does that, it will take away business from all its stockbrokers, causing them to pull out of the exchange and ultimately the demise of the exchange. The B2B2C connectivity aims to procure a win-win-win situation for the wholesaler, distributor and client. It is on this basis that we find our solutions very well liked by all the different layers in the value chain.
Easy now to start a new FX business: 3 in 1 package
FairEx BConnect was designed as a complete integrated front-end dealing, mid office risk management and position keeping and back office features. The cost of these systems if purchased separately is typically too daunting. Even if they could afford 3 separate systems, the task of selecting them and putting them together so that they can talk to each other is rather costly and time consuming. Except for the better-capitalised banks, the smaller banks and broking institutions will find the cost of owning 3 separate systems too high an overhead for their business. Presently, many brokers don’t even have a proper risk management system. This has significantly impact the scalability of their business. However, using the FairEx 3-in-1 integrated BConnect system, it is more economical and convenient, and allows them to scale their business without the worry of not being able to manage the risk. All the brokers need to concentrate on is client relationship and client acquisition. In fact, it will be a very simple business now to set up an FX business using FairEx BConnect system. As long as you have a strong sales team with solid client base, you can easily embark on an FX business by employing FairEx BConnect system as an off the shelf web-based complete system. FairEx takes care of all the technology set up, manages the system and participates in profit sharing.
Value creation of a virtual 24/7 treasury desk
There is tremendous value creation for the banks and brokers who can now operate a 24/7 operation without physically being there. Typically, most banks and brokers don’t operate beyond the official working hours, say 9 am to 5 pm. And this means only 8 hours of client business on a typical day. However, the other 16 hours are being left out because it is either too expensive, impractical or too difficult to run a night desk that covers essentially the other 16 hours of the day (the 5 to 9). It is therefore a major loss of potential economic value and client loyalty, as clients like to be serviced at all hours. Especially in the field of foreign exchange, it is traded round the clock, and if a client has an outstanding FX position that he puts on during the daytime, the client may want to offset that position at night when the market trades in London, New York or Australia.
Unprecedented straight through processing (STP)
FairEx has successfully achieved the following unprecedented STP:
Global bank trade processing <- -> Global bank internal pricing engine <- -> FairEx B2B Exchange <- -> Regional bank / broker B2C trading system <- -> Customer trade execution <- -> Regional bank / broker back end system
It is fast, accurate and seamless. The whole process starting from the time an end client at the bottom of the food chain enters a trade and the time it gets executed by the global bank and reported back to the client takes only less than a few seconds! This completely hands free approach to FX transaction has never been done before and it absolutely frees up the regional bank from the mundane and error prone processes of trades handling. As such, the regional bank can fully concentrate on scaling its business and focus on value added activities without having to worry about operational inefficiencies and additional infrastructure set-up.
A Financial Supply Chain Model
The FairEx business model is a financial supply chain that starts from the wholesaler FX bank and delivers the goods all the way to the end client at the retail outlet (B2C level). We believe that with new technology, goods can be conveniently delivered to your own home. It is thus a buy side advocate model. For example, the global banks deliver their prices to the client own website, instead of the client having to go out shopping (i.e., instead of going to the website of the global bank to execute a transaction). It is natural way to tap into the power of the internet.
We know that every local bank needs prices and products from more than 1 global bank. For example, a local bank might need to have the bond prices from a few global players, plus FX prices, plus perhaps options and swap prices. It would be an operational nightmare if this local bank has to login to all these different banks websites to ask for prices from the respective banks. FairEx has made it easier for them. We ask the global banks to feed their prices using an API into FairEx B2B exchange, and have us redistribute them to the website of the smaller bank. This way, the global banks only have to integrate ONCE with FairEx, and FairEx aggregates all the information, and redistribute out to the smaller banks and brokers who need them. It is more efficient this way.
As foreign exchange is becoming more and more of a homogeneous, plain vanilla commodity, we don’t expect clients to call a global bank to ask for quote on FX prices much anymore; instead, the bank will be delivering prices out to the client via an electronic means. The goods get delivered to your own home! FairEx facilitates the whole process by delivering the global banks prices into your own website. Having said that, banks will still continue to service clients for other more sophisticated needs like investment banking advisory activities, packaging structures products etc; those that cannot be replaced easily by means of an electronic price feed and need human interaction.
