Best Liquidity Aggregation System: TraderTools

Due to the constraints of regulation and capital requirements, the top traditional market-making banks are finding their non-bank counterparts eating more of their lunch. Emerging and local markets currencies are both tricky and attractive at the same time. Tricky, because there is less international liquidity in these units than in major currencies, but attractive because spreads are wider, so profitability is higher.

Liquidity aggregation system TraderTools identified the attraction, as well as the demand for consistent pricing in emerging markets currencies, and it set about building a network of Tier 2 banks whose customer franchises in local markets offer a rich vein of liquidity.

We listen to our customers. It is really that simple
Yaacov Heidingsfeld, TraderTools

"We listen to our customers. It is really that simple. We looked at the market a few years ago and we saw there was definitely an underservice of the mid-tier regional banks in Africa, and in northern and Eastern Europe. And, in engaging with those banks, we found they had an appetite for liquidity in their local markets that just wasn't being met," says Yaacov Heidingsfeld, chief executive of TraderTools.

The company has a strong focus on providing a unique blend of G10 and emerging markets liquidity in Eastern European, Turkish, Scandinavian, South African, New Zealand and Australian currencies, which landed TraderTools at the top of the judge's list for the Best Liquidity Aggregation System at the 13th FX Week e-FX Awards.

"The reason for the appetite in local currencies was to service their natural customer business. The reason the large liquidity providing banks are less interested in providing real competitive pricing to these very same institutions was an understandable information disadvantage that they felt they were in," he adds.

Heidingsfeld realised local banks in those countries had an appetite for risk; something their large, global counterparts lacked. Best of all, the local banks had the inventory.

Innovative culture

TraderTools offers one-to-one pricing, which enables liquidity providers to quote for the business they want to win, leading to fill ratios exceeding 95%. Moreover, the firm has formed relationships with the alternative liquidity providers filling the gaps left by the top banks, adding to the success of its business.

"I think we have a culture in our company that looks to be innovative. There are other companies we compete with and we are not the largest company in our space. We can't compete with the largest companies in the space," Heidingsfeld says.

"The way we can compete is by being thought leaders and providing a level of service to our customers that does differentiate us. We can't compete on price. The larger players can discount us away to nothingness. We are smaller, we are nimble, we listen to our customers and we respond," he adds.