While slow and steady might win the race, it’s all about speed in foreign exchange (FX). Every millisecond – during which prices could fluctuate dramatically – counts. Enter four-year-old Singapore company Spark Systems. With its ultra-low latency, resilient and next-generation FX trading platform, it is giving trading companies based in Singapore and the region the advantage of speed – and then some.
And, where the likes of Thomson Reuters-owned FXAll, FX Connect and Bloomberg charge US$3 (S$4.15) to US$10 for every US$1 million of trades, Spark Systems charges just US$2. Furthermore, it integrates analytics and AI that optimise performance to the requirement of the trader, vastly improving the UX.
Why haven’t existing platforms upgraded themselves ? Building institutional-grade software is an expensive exercise that can cost between S$30 and S$40 million – and that isn’t taking into account the costs of hiring personnel to develop it.
Besides the prohibitive costs, a company could spend the money and time and still end up with no users if the traders and dealers don’t like the interface. But the people behind Spark Systems were confident they could develop an appealing system. After all, the company is founded and led by Wong Joo Seng, an FX market veteran who, in 1998, created G K Goh Financial Services, one of the largest institutional foreign exchange trading houses in Asia. Even back then, he found it hard to swallow that the company was paying 40 per cent of its revenue to trading platforms.
To put things into perspective, with a revenue of US$20 million on US$1.5 trillion traded annually, G K Goh was shelling out US$8 million a year to the platforms. By starting Spark Systems, Wong created a platform that addresses the industry’s pain points.
Besides backing from the Monetary Authority of Singapore (MAS), Spark Systems is supported by Dymon Asian Ventures – the venture capital arm of hedge fund Dymon Asia, giving the start-up funding and a guaranteed anchor client.
Since its launch in April 2016, Spark Systems has attracted investments from the likes of Jubilee Capital, Goldman Sachs’ Principal Strategic Investments and FengHe Fund Management. In its Series B that concluded in May, Spark Systems – whose daily trading volume recorded an average of US$5.5 billion in the first quarter, up from US$2.5 billion during the same period in 2019 – raised S$15 million and brought in new shareholders Citibank, HSBC and OSK Ventures.
Spark Systems is not just revolutionising the FX trading platform. It is creating a new FX ecosystem in this region. Though the world’s third-largest currency trading hub behind the UK and the US, Singapore has no data centre anchoring the matching and pricing engine. Instead, orders are sent to Tokyo, London or New York for execution. With an eye on a bigger slice of the US$6.6 trillion-a-day FX market, MAS is courting the big boys to set up electronic-pricing engines here. The Spark Systems platform is instrumental in advancing the country’s ambition.
To date, UBS Group, Citibank, and Standard Chartered are among many of the banks that have set up their computing centres in Singapore. “The FX world is peculiar in that, while there are thousands of banks in the world, some 80 per cent of the FX market is controlled by the top 10 institutions. I feel that we need only attract six to seven of the top ones – and we are already very close to that figure – and soon you will see everybody else coming.”
This spells exciting news not just for the Singapore finance industry, but the region as well. “Bringing the latency of execution from 360 milliseconds down to one millisecond fundamentally changes things not just for Singapore, but also the entire region. Our neighbouring countries, such as Malaysia and Indonesia, will also want to route their orders to Singapore rather than to faraway centres such as Tokyo,” shares Wong.
“The opportunities created go beyond the finance sector. This is an exercise which can improve the FX experience for all regional users. If we turn Singapore into a matching centre, the banks’ electronic pricing teams will have to be built up and the IBMs and Hitachis of the world will have to be based here, creating jobs in Singapore.” Despite a global economy slowed by the pandemic, Wong remains optimistic: “The hedge funds are always looking for opportunities. We provide the infrastructure so trading can happen seamlessly and inexpensively. We will always be the ones selling spades in a gold rush.”