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Refinitiv - at the beating heart of global FX trading

Discover how Refinitiv’s FX trading ecosystem is a market leader in the institutional foreign exchange arena. 

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Refinitiv maintains one of the world’s leading digital FX trading ecosystems – running not only electronic trading venues where buyers and sellers can connect, but also a range of software that covers everything from pre-trade analytics and news analysis, to post-trade regulatory reporting and tracking of deals.

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Chapter One

Transparent foreign exchange markets

In late January 2020, Refinitiv was contacted by the Central Bank of Guinea. The African bank had been working closely with the International Monetary Fund (IMF) to accelerate economic reforms, and, as part of the requirements for funding, improve the transparency of its foreign exchange (FX) markets. Until then, most of its foreign exchange deals were being conducted manually and mostly offline leading to opacity around trades being done and uncertainty around pricing of those trades.

Refinitiv maintains one of the world’s leading digital FX trading ecosystems – running not only electronic trading venues where buyers and sellers can connect, but also a range of software that covers everything from pre-trade analytics and news analysis, to post-trade regulatory reporting and tracking of deals.

What the Central Bank of Guinea needed was electronification of their foreign exchange trading process – a way of conducting these trades electronically and therefore with more transparency. Electronification represents not only the digitisation of these real-life workflows, but also makes them faster, more efficient and transparent. Electronified FX markets allow traders to deal in thousands of tickets a day online, augmented by automated workflows, using algorithms that ensure they are compliant with regulations at every step of the trade.

Further driven by the COVID-19 pandemic that struck in March 2020 and the subsequent acceleration to the online environment – the need for electronification has never been greater. For New Guinea, Refinitiv deployed their FX Trading platform giving the local market access to more liquidity and a range of automated trade reporting tools, as well as Auctions, a software that gives users a real-time view of bid submissions. This was an invaluable collaboration that has enabled New Guinea to meet IMF’s reforms and requirements for funding, not to mention to build more resilience, efficiency and transparency into their FX processes across the workflow. 

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Chapter Two

An interconnected ecosystem

At its core, FX is a simple concept: you buy one currency and pay for it in another currency, at a given rate, with banks providing the liquidity for the exchange. This has the economic function of facilitating trade and payments around the world. Any company that needs to buy equipment, fund factories, pay employees in different parts of the world, fundamentally depends on foreign exchange to keep its business running. 

Today, this simple concept powers a complex ecosystem that, via electronification, connects a multitude of agents — from the biggest banks in the world to solo trader desks in developing markets, from global regulator institutions to the infrastructure providers like Refinitiv. This ecosystem constitutes a market that, in the past three decades, evolved to be one of the largest industries in the world, with daily trades totalling $6.6 trillion. And behind that evolution stands a company that pioneered many of its innovative breakthroughs, Refinitiv. 

In 1981, at a time when all FX business was conducted over the phone, Refinitiv (then called Thomson Reuters) was the first to allow traders to do something unprecedented: communicate via electronic messaging. The company launched a software called Reuters Dealing System, accessible to subscribers of the Reuters financial information terminal — then ubiquitous in banks and trading offices — to be connected with other FX traders around the world, and negotiate and confirm deals via electronic text. “That was the beauty of Dealing, it was the first system that allowed traders to go from chat to electronic notification of the trade, which would then be captured with automated ticketing and sent to the back office for confirmation,” says Bart Joris, head of FX sell-side at Refinitiv. “It transformed the markets.” 

Eleven years later, Reuters launched another game-changer with the trading platform – Matching. “When banks did price discovery, they would need to call everybody else to see if there was interest,” says Joris. “We thought, how about creating an electronic platform where they can show their interest to everybody else, where they can put in a bid and offer on the screen.” Matching is a leading primary market venue linking bank and high frequency trading institutions.

The natural evolution from that was another platform that instead connected dealers to customers, a third-party venue where customers could find banks and execute deals. “It used to be that people would need to make many calls to different banks to get different prices for one deal,” says Neil Penney, group head of FX at LSEG. “We created something where prices would go out electronically, and you could just click on the best price.” 

FXall made its first trade in May 2001. Today, FXall is the leading dealer-to-customer platform, connecting more than 2,400 clients with around 200 banks across 500 currency pairs. Matching, on the other hand, is still considered what’s called a primary market, as the trading data it produces is also used by the entire industry to benchmark FX trades. “Beyond just being a place where buyers and sellers come together, universally it is acknowledged as the trusted source of where many currency pairs in the world are trading,” Penney says. “It's a place that generates very valuable data which goes into regulated industry benchmarks, and banks use it to price out to their customers.” And Dealing, which recently completed 40 years of existence, remains widely used in developing markets in Africa and Middle East, where it remains the main platform for electronic trading. “I always ask people how many software products do you use that are 40 years old?” says Penney. “And the answer is none.”

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Chapter Three

World-leading FX trading platforms

Today, Refintiv’s electronic venues process about $460 billion in trades every day, connecting more than 2400 customers including major global companies across all industries to over 200 global banks, operating in 130 countries around the world. This makes it the world’s leading ecosystem of FX trading platforms in the world. 

In May 2021, following the acquisition of Refinitiv by the London Stock Exchange Group, one of the first investments made involved initiating a migration of the group’s FX trading venues, Matching and FXall, onto the Millennium Exchange electronic trading software, which powers the London Stock Exchange trading facilities. This migration will, for instance, accelerate the processing of electronic orders to sub-millisecond latencies. It will also allow traders to use advanced data analytics dashboards and new workflow tools that incorporate more sophisticated trading strategies, such as creating a rule-based algorithm where trades can be executed automatically at certain prices, or split orders into different providers and execution methods.

For Refinitiv, this emphasis on workflows is a crucial part of its FX ecosystem and, in combination with deep access to venues and liquidity, crucial in helping traders work with venues like FXall and Matching. “We can connect a client with any bank across the globe because we have access to that liquidity. But if you have access to that liquidity and you don’t have the workflow, you’re not creating the efficiency the client is looking for,” says Joris. “That’s our speciality, that’s what we do really well. It’s what we call electronification of the workflow.”

In the equation of FX markets, there’s a third element in addition to trading venues and workflow tools: regulation. “In the aftermath of the 2008 global financial crisis, the relationships between banks and the public sector was at an all-time low,” Penney says. “We had to introduce more structure and safety into the industry.” In 2014, a committee that included representatives from the public and private sectors, and central and commercial banks, began putting together a principles-based code of conduct for how the foreign exchange market should work, called the FX Global Code. Its first iteration was released in 2017. “The world is extremely complicated post financial crisis, and people need help,” says Penney, who’s also the vice-chair of the FX Global Code Committee. “Smaller institutions don't have the lawyers and the regulatory experts to help them on staff. They look to people they trust and we have their back.” 

The FX Global Code reflects two fundamental requirements underlining good regulation: transparency and auditability. “It used to be enough to do a good job and you could brag about being a great trader,” says Penney. “Now you have to be able to prove that to your manager, your internal compliance officer, and potentially, the regulator, with data and audit trails.” Most of the recommendations in the code enforces this. For instance, market participants are urged to communicate only via approved means of communication that allow traceability and record-keeping; records should be kept for a minimum of five years and timestamps should be able to record activity in millisecond intervals. 

Refinitiv provides post-trade software that connects directly with venue platforms and workflow tools to ensure that all trading complies with these recommendations. For instance, last year, in partnership with Global Relay, the company launched the Refinitiv Compliance Archive, which can analyse and report on all trading messaging from over 50 sources including Microsoft Teams, Eikon Messenger, LinkedIn, social media, and voice calls. “In the past when something was going wrong, we used to go into a room with HR and the head of compliance would listen to the tapes and check no mistakes were made. Now it's different: you just need to define the perimeters of the allowed tools of communication, record to archive, and proactively monitor what is happening,” says Vince Dimase, director of global sales strategy and execution. 

In August 2021, after a three-year review, the second iteration of the FX Global Code will be launched. “If you never change it, then it becomes obsolete,” Penney says. “If the code stays the same while the market evolves, before you know it reads like a 1950s document.” Indeed, the biggest driver for that evolution has been regulation itself, since electronification is not just the best way to provide faster and more efficient trading, it’s also the best way to provide transparency and auditing. “If it’s all created electronically you know everything: what price, where, how, when, how long it took them to respond, why they rejected you, etc.” says Goraieb.

 It’s here that the Refinitiv FX ecosystem comes full circle: “You have the venues, which traders connect into via different workflows to do their deals, then regulatory reporting extracts data from these deals,” says Joris. “That data drives again the business cycle of price creation, distribution, trade and post-trade. It’s like a flywheel.” And that interconnectedness is embedded in how Refinitiv designs and innovates. “Rather than buying five different products from different vendors, we provide our clients an end-to-end service,” Penney says. “We’re more than just a vendor: we’re partners.” 

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Chapter Four

Refinitiv’s FX ecosystem

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