LONDON ParFX, a currency trading platform launched to curb the advantage of high-frequency traders, will allow hedge funds to join banks in its trade to increase liquidity and create a wider trading community.
The platform, featuring technology to level the playing field between slower and faster clients, has been exclusive to banks with 12, including Deutsche Bank and Barclays, backing it since its launch last April.
"In the coming months, we will allow customers to trade through their prime broker alongside the banks," said Roger Rutherford, chief operating officer at ParFX.
The latest BIS triennial survey of the currency market shows hedge funds and proprietary trading firms have a 11 percent share of the $5-trillion-a-day global currency market. The spot currency market sees a daily turnover of $2 trillion a day.
The main clients for prime brokerages, which are usually owned by banks themselves, are hedge funds. Hedge funds often run machine-driven algorithmic trading programmes, or algos, that pump out a large number of small orders at a super-fast pace.
High frequency trading strategies which have proved highly controversial are sometimes run by hedge funds, although many are managed by proprietary firms betting on their own money.
The growing prevalence of high-frequency trading has raised concerns about fairness in markets and whether those with the fastest technology are putting other investors at a disadvantage or creating dislocations as a result of their speed.
Currency platforms like ICAP's IAP.L EBS, which have players including banks and corporations, have recently shown resistance to allowing high-frequency trading to proliferate. ParFX is a major initiative by the big global banks to check the presence of high-frequency, anonymous traders.
ParFX, though, will ensure the entry of prime brokerages does not lead to the domination by high-frequency traders.
"We understand that certain types of trading behaviour exist because they have a mask of anonymity. This will not be the case at ParFX - buy side firms that trade on our platform will be subject to the same rules, compliance and full transparency as existing players," said Rutherford .
"Controls will be given to the prime brokers so that there is an elegant way to control and act on behalf of their clients."
(Reporting by Anirban Nag, editing by Elizabeth Piper)