e-FX Initiative Award – LoopFX

After a lead-up period, LoopFX launched earlier this year with multiple counterparties using the service. New platforms rarely make a splash in the FX market, but this one has, mainly because Loop has managed to create a new model, whilst not upsetting one of the core franchises involved – banks and asset managers.

Information leakage, and by association market impact, has grown as a theme in markets over the past few years as they have become increasingly electronic and delivered more and more data. This has led to some questions over the market environment for participants looking to execute larger tickets (and the whole concept of what is ‘large’ has changed over the past decade or so). LoopFX has been launched to solve this problem, but it has done so in an intelligent way.

We have to be blunt and state that anyone seeking to deliver a pure peer-to-peer platform for spot FX is going to have to wait a long time for meaningful volume to emerge. Yes, between certain client segments there are natural offsets, but that fact is they rarely happen at the same time. The reason internalisation is so successful is because, albeit for milli-or a small number of seconds, the LP is holding the risk – instantaneous matching of buy-side-to-buy-side interest rarely occurs, if it did the 4pm Fix would look a lot different in terms of market impact profile.

Loop’s solution was to introduce that third element to P2P – 2B. It brought the banks interest into the pie and suddenly the potential for matches grew significantly, but, notably, without the information leakage.

We have long been fans of a ‘dark’ trading environment for larger tickets, it also rewards those LPs willing to take on larger risk – which should be encouraged for the health of the FX ecosystem. It has to be done wisely, however, and in LoopFX we have the best solution to-date; it helps the buy-side, but does not disenfranchise the major players in the industry – the banks.

The fact that it does so without disrupting their workflow is the cherry on the cake. Progress will not be stratospheric, but this could be the start of a significant shift in how an important segment of the FX market interacts.