Interview with David Cooney - how to build an electronic FX business from scratch
You need a few different things I think. Some special-forces quality IT guys, a commercially-orientated quant, a crafty risk veteran or two and then a boss who is visionary enough to let you park everybody in a room for at least six months while you create both the culture and the system. Six months later when you come blinking into the light, with your app deployed on a high-end, optimally globally distributed infrastructure, built for you at no little expense by another quality team of guys, now you are probably going to need that same bosses indulgence as you tune the system. And it is only now you can get the sales team swinging in behind it all. It’s hard to get all those stars aligned.
What has led to the dominance of the "flow monster" in the FX market?How hard it is to get all the elements in the first question together. And if all that was hard back in the expansionary days, it’s way worse now. Park six or so expensive front office people, fully loaded with the new world’s allocated costs, in a room while they work on something that will only hopefully work? That is going to need some selling.
Is that market concentration likely to persist, or do you see the landscape changing?It has been remarkably persistent over the past few years. But I guess you can see why. Getting up to speed is tough, and the environment hasn't been that keen on adding costs for uncertain outcomes. But ultimately I think it has to change. Price taking banks, institutions outside the flow monster bracket, know they have to become much more of a price maker in order to be competitive and future proof their business.
How can firms make the jump from being a price taker to price maker in the FX industry?Well, they can try and assemble all the elements at considerable expense, wait the considerable time required, and hope that the result works – and there have been plenty of these projects that have disappointed – or they can licence our technology, MFX Compass, and be in business in a month, with no capital expenditure, with a proven system that we partner with them to operate. Personally I'd go with option B.
And it’s an important question. FX, spot FX in particular, is a fabulous business in its returns to capital, just completely stand-out. The concentration we have seen in market share of recent years has been because a limited number of players produced technology that massively cut their cost of producing the product. And so they can supply it to the price taking banks, who then get an improvement in their cost of production. So far, so good for all the banks. But what happens next, when the price making banks start, in their search for growth, talking directly to the price making banks clients? That is not so good for the price takers, having one of your very best businesses being stolen away, because your cost of production is higher.
Aside from the FX market, where would you most like to earn a living?I'd really like to be a helicopter instructor. I just think they are the coolest machines, and it would be fun teaching people to fly them.
