Best e-FX Trading Venue and Best FX Hedging Platform: Hotspot

Last look became one of the most controversial practices in foreign exchange over the course of 2015, as regulators and market participants focused on the option afforded to market-makers to withdraw from trades before their completion.

Bats Global Markets-owned foreign exchange trading platform Hotspot was one of the first platforms to take steps to prevent the misuse of last look, by both raising its minimum requirements for market-makers in terms of fill ratios and cancellations.

In a statement of intent showing the ambitions of Hotspot under one of the world's largest stock market operators, the venue launched a London-based matching engine in September 2015 and began aggressive pricing initiatives, as it pursued its goal to take a bigger share of the primary price-discovery market.

"From a technology perspective, the launch of the Hotspot London matching engine was an immediate and direct benefit of being part of the Bats Global Markets organisation, because they have a strong local presence in London," says Bill Goodbody, senior vice-president and head of FX at Bats Global Markets.

The new LD4 matching engine is co-located with Bats' infrastructure, which means customers of the two asset classes can benefit from the extra opportunities afforded by the match.

The reason for the acceleration is simple. We've had a lot of important customers plug into our London matching engine, both on the liquidity provider side and the taker side. We're seeing significant traction
Bill Goodbody, Bats Global Markets

The market-building exercise has achieved steady growth since launch and it experienced a significant acceleration in June, ahead of the UK's referendum on its European Union membership. Volumes at LD4 have topped $3 billion per day on a single-count basis on several occasions.

"The reason for the acceleration is simple. We've had a lot of important customers plug into our London matching engine, both on the liquidity provider side and the taker side. We're seeing significant traction," says Goodbody.

In November, Hotspot further leveraged its relationship with its owner by migrating its New York matching engine to the Bats complex at Equinix's NY5 data centre.

This strategy of expansion and investment, along with the venue's focus on raising the bar in the market, earned Hotspot the judges' votes in two categories of the 2016 FX Week e-FX Awards – Best e-FX Trading Venue and Best FX Hedging Platform.

Hotspot Link

Hotspot has made headway with its new, relationship-based trading facility, dubbed Link, which allows trading on a one-to-one or request-for-quote basis.

"Hotspot Link is a real complement to the ECN market we have today, allowing for relationship-based trading between counterparties, whether it's bilateral, where a market-maker wants to price a certain client – they can do so through the Hotspot infrastructure – or for clients who want to trade in a private environment with a couple of market-makers. We can build that private marketplace for them and do it on a very efficient basis," says Goodbody.

Link provides an exclusive environment for clients needing to conduct trades of large sizes. As a result, single trades of up to $100 million in notional have been executed on the platform.

The Link infrastructure is part and parcel of Hotspot's strategy to maintain a diversified range of market participants trading on the platform, which enriches the depth of liquidity accessible to clients who may have specific trading or hedging needs.

"The important part of the Hotspot market is the breadth of its liquidity providers, with participants of all shapes and sizes with different strategies leaving orders on the orderbook," says Goodbody. "This diversity of participants makes for a good hedging experience. Clients know there will always be some liquidity there, and not just based on the whims of the current market."

With the broad scope of banks, non-banks, proprietary firms, asset managers, commodity trading advisers and corporates that are trading and market-making on the platform, Goodbody is confident that Hotspot will be able to tackle the shifting sands of the FX market, and address the retrenching of principal bank liquidity and more active money managers on to the scene.

In its bid to increase market share and offer more than just spot trading, Hotspot is opening the door to other FX products, starting with outright forwards, which will be launched in the latter part of the third quarter or early part of the fourth.

"Forwards are the first stop on the road to offering additional FX products. We are excited to expand the Hotspot product offering to include forwards contracts, meeting what we see as a real client need for additional sources of anonymous liquidity in these products – we'll see where it goes from here," concludes Goodbody.