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Harpal Sandhu co-founded Integral in 1993 with Viral Tolat. In the late 1990s Harpal foresaw the dramatic impact that e-commerce would have on wholesale capital markets. He began adapting Integral's strategy and core technologies — the risk management, analysis and capital markets trading... More
My company:
Integral Development Corporation
My blog:
FX Insider
  • Dankeschoen

    Just as I was looking for a new idea for how to tout the advantages of cloud computing in a different way, Deutsche Bank comes around and does it for me. And, they do it in a very convincing, 20-minute-long video that is very professionally done, featuring senior executives of their FX organization, both from the business and the IT side.

    Granted, they talk about open source and we are talking about cloud computing but these are only different paths up the same mountain. The mountain is called shared IT infrastructure. The ultimate benefits for the end customer are increased operational efficiencies, dramatically reduced costs and lower barriers of entry. And they are the same with both approaches.

    What the executives say as well is that the do-it-yourself model is dead. Kaputt.

    You can read about it in the Financial Times or watch the video, but below are some of the most salient statements. While there are a number of people interviewed at length including Zar Amrolia, Global Head of FX, and Dirk Ward, Head Autobahn FX Product Management, I think Kevin Rodgers, Head of FX Spot, Derivatives and eTrading, puts it best. Here are a few excerpts:

    "If everything we do in IT or telecom is meant to be a competitive advantage, where do we stop? Do banks create their own telephones, their own telephone exchanges? Do we build our own servers? No. Do we build our own operating systems? No. "

    "Bankers Trust did create its own operating system called Bits. We spent millions on this thing and frankly, it didn't give us much at all. And when we merged with Deutsche Bank, it was thrown away."

    "If we can find a way as an industry to collaborate and to make the creation of a lot of our software and a lot of our software components open source, the advantages I think are pretty obvious. Overall, we'll cut costs as an industry. And we can pass that on to our customers. Overall, we can create a foreign exchange industry that is faster, cheaper and better for everybody."

    What Deutsche is trying to achieve with open source, we already built; out of a similar conviction: A shared IT infrastructure for FX that we call FX Grid. Cloud services that are extremely easy and cost effective to deploy, in far less time than it takes to spec a proprietary system.

    The vision these Deutsche Bank executives are talking about - a FX industry that is faster, cheaper and better for everybody - is already reality for customers of Integral.

    Nov 21 5:39 PM | Link | Comment!
  • Ten Questions About The Business Of Margin FX Trading

    1. What is the biggest change you have seen in recent years in FX markets?

    The biggest change must be how technology has lowered the barriers to entry for many new market participants to enter and thrive in the global foreign exchange market. What was previously an extremely fragmented, disconnected, opaque market is transforming into a more diverse, integrated, and transparent market.

    2. People are talking about a technology arms race in FX. With that said, does anyone other than the largest and best capitalized players stand a chance to compete at all?

    Yes, it is true that in order to compete and win in this competitive FX market, one must make use of very capital-intensive technology infrastructure. It does not mean, however, that one needs to build and own that infrastructure themself. The Integral shared platform and the cloud services are on par with or better than any other technology solution out there, at a fraction of the price and with far less risk. The game has changed and as in other industries, the introduction of a shared technology platform has dramatically leveled the playing field.

    3. What is your advice for market participants with large off-line or telephone-based businesses who are considering going on-line?

    The good news is that today's technology can deliver discrete functionality similar to what human traders or salespeople can do. Integral has a track record of helping banks and brokers launch their own FX platform, basically for free and with very little risk. It can happen with no capital expenditures on their part and can be deployed in a matter of weeks, because they benefit from the pre-existing connections with all major sources of liquidity and prime brokers that we have aggregated over many years. And, given that they have no ongoing fixed expenditures, they have no running costs to worry about. So why wouldn't they go electronic now?

    4. How is Integral different from other technology solutions?

    We are a neutral service provider. We are not and will never be a bank or a broker, nor do we transfer the risk of a successful implementation to the customer. While this seems like an obvious distinction, it carries many ramifications that may not be as evident. The biggest difference to the traditional license-and-install software vendors is that we enter into true partnerships with our customers. The basic reason lies in the way we are compensated: Integral charges a small service fee on any trade our customers execute on our platform. If customers are not trading, we are not getting paid. If customers are not happy with the system, we are not getting paid. Therefore, our interests are fundamentally aligned for the short and long term. We want them to be successful and to expand their businesses.

    5. What is your position on the discussion around platform proliferation?

    I think that these new platforms are a great addition to global FX markets. Actually, they are a great indication of the technology revolution that has been taking place over the last few years. Today, technology has advanced to a point that mass customization is now practical and economically feasible. Modern cloud-based service offerings, like Integral, can automate what you have exactly the way you have it. What we are witnessing is that many off-line FX businesses are moving online by embracing e-FX. It's a trend that we applaud and one that I think will continue.

    6. With lower volumes, regulatory pressure, many new competitors, is this a good time to start your own FX brokerage?

    If you have a solid business idea, if you are committed to great customer service, and if you're marketing organization is top notch, there has never been a better time to venture out and compete in FX. There is more transparency than ever, the barriers of entry are lower than ever, and with the right technology partner, you can focus like never before on customer service and acquisition. If you have any questions, give us a call so we can discuss your opportunity in more detail.

    7. What is cloud computing and how can it help me?

    Cloud computing is a new paradigm that has dramatically changed many industries, including FX. Its key characteristics are the use of a shared IT infrastructure and a pay-as-you-go business model. Previous static technology products with fixed functionality have been replaced by flexible cloud services that you subscribe to on an as-needed basis. What all that adds up to is a business model with virtually no fixed costs, no CAPEX, and the built-in flexibility to change as your business needs change.

    8. Where do see the future of white labeling?

    Generally speaking, I see a bright future for white labeling, but it will be slightly evolved. Clearly, I don't see many new proprietary platforms emerging that are not in one form or another based on a common underlying technology. In light of the quality of technology solutions that are available already, it just doesn't make sense given the costs and time required to build something from scratch. I am hesitant to call this 'white labeling' since it is so much more. White labeling, how it came to be understood by most people, describes the licensing of somebody else's technology platform and somebody else's liquidity - without any real chance of making it your own. The new kind of white labeling, how we understand it, puts the business owner in control of key elements and allows for far-reaching customization of the technology tools to fit that business owner's preferences. FX has come a long way from the one-size-fits-all white-label offerings from years past.

    9. What is your position on the principal vs. agency business model?

    The debate in the market is sometimes very heated, with different people making absolute statements for or against either one. In my view, both models have their respective merits. Our platform supports both, and at times even for different customer segments under the same brand. And that is the best news: You don't have to take sides. In the end, your customers will tell you whether they want what you're offering. And if not, and if you are one of our customers, we will help you adapt to better serve their needs; because that is the most important debate of all.

    10. What has been your proudest achievement as CEO of Integral?

    The fact that we helped launch more than 200 and counting FX platforms that are all unique, customized businesses that vary in market structure, value proposition, target audience, user experience and business model, all branded under the name of our customers. As far as I know, no one other than Integral offers technology that can support the variety of platforms on a single virtual SaaS system. That's where we think we have accomplished something that fundamentally changes the economics of the FX service provider market. This is not unlike the effect that the introduction of Lotus 1-2-3 and MS Excel had on the financial software market: One system, provided by a technology vendor, extremely customizable, with virtually unlimited applications designed by and "owned" by the customers themselves.

    PS: If you're interested in the business of margin FX trading and want to learn more about what Integral can do for you, click here.

    Nov 21 5:37 PM | Link | Comment!
  • About Predictions Gone Wrong

    The head of the United States Patent Office, Charles Duell, is credited with arguing in 1899 to close the Patent Office because "everything that could have been invented, has been invented."

    In the early 1940s, IBM's president, Thomas J Watson, reputedly said: "I think there is a world market for about five computers."

    Jon Corzine, then-CEO of MF Global, in a company-wide email after a downgrade by Moody's wrote in late October 2011: "While I am disappointed by this action, it bears no implications for our clients or the strategic direction of MF Global." And: "The sun will come up tomorrow."

    In July 2012, one can read in an article in FXWeek that "The flurry of new trading platforms that have launched in the foreign exchange market in recent months is unsustainable …and will undoubtedly lead to further consolidation as the successful ventures are acquired and the unsuccessful ones are pushed out of the market, according to speakers at the FX Week USA conference in New York last week".

    Leaprate.com echoed this sentiment stating that "It is also hard to believe that all these firms will each build up enough volume to create worthwhile businesses."

    If you started out chuckling about how woefully shortsighted some people were in previous centuries, you can tell by now that we have comfortably arrived in the present and the current discussion about the proliferation of FX platforms. Are you still smiling? I am not. It baffles me to read story after story about 'platform proliferation' as a result of a measly 6 new ones that were announced by a variety of industry participants in the last 2 months. In that time frame, Integral alone launches that many and more on behalf of its customers.

    Seeing the forest for the trees

    I am not trying to make fun of any of these individuals but again and again, people seem to be repeating the same mental mistake of looking through the lens of the past when trying to understand new things. When personal computers entered the corporate offices in the late 80s, nobody really understood how to make use of them. At the time, the only people in the office who were using desktop machines in a significant way as part of doing their job were secretaries who had typewriters. And when asked, how many PCs were needed, the usual answer was one per department. Depending on the ego of the boss, it either continued to collect dust in his office, or in a spare room somewhere. People considered it to be a distraction, a time waster. These debates occurred while every office worker had a phone on their desk. But guess what, when the phone was introduced into the workforce decades earlier, the exact same discussion had happened. Who needs a phone at work? To do what? Well, maybe we take one for the department but it is really a distraction and there is a great danger that workers will waste corporate time. Here is my last example: When finally, in the early nineties, office workers had PCs on their desktops and were using them on a daily basis, along came the Internet. Again, its roll-out got delayed along the very same patterns. Who needs it? It's a distraction, employees will waste time on it. Fast forward to 2012. Imagine you, in the middle of your workday, and suddenly there is a serious power outage and you lose your phone, your PC and access to the Internet. It will be painfully obvious how all these developments enhanced your ability to do your job and dramatically have increased your profitability. That's how − in hindsight, everyone understands the power of paradigm shifts.

    "The sky is falling! The sky is falling!" (Chicken Little)

    For the record, in the last 18 months, Integral has launched 80 FX platforms for customers, an average of 4 per month. I am happy to report that the FX world is still in order. But, there might be a new FX world order emerging.

    This shift is driven by two factors; one is that technology can now deliver discrete functionality similar to what human traders or salespeople can do (see the recent Tullett Prebon announcement) and b) that by partnering with someone like Integral, any bank or broker can launch their own FX platform for basically free and with very little risk. It can happen with no capital expenditures on their part and be deployed in a matter of weeks, because they benefit from the pre-existing connections with all major sources of liquidity and prime brokers that we have aggregated over the years. And, given that they have no ongoing fixed costs, the sustainability issue goes away. So why wouldn't they?

    Are we online yet?

    Decades ago, it was extremely expensive and very time consuming to set up an electronic brokerage system. As part of the planning, one had to decide on one way to execute (i.e. order book) and that was that because the technology was very limited in its flexibility. Subsequently, everyone else who wanted to join in and trade on that platform was forced to change their own business processes to fit those of the electronic venue. Because one size doesn't fit all, many stayed away. As a result, FX markets are already highly fragmented in the off-line world with thousands of sustainable individual businesses who trade FX in any non-electronic way imaginable.

    Today, technology has advanced to a point that high-level customizations are economically feasible. The saying 'what you see is what you get' has evolved into 'what you want is what you get'. Integral can take what you have, and automate it the way you have it. No need to compromise. I know from the many inquiries we get that organizations that are currently on the fence, or are not yet participating in e-FX, are taking note. These FX market participants look at their existing way of trading FX and decide to automate it, exactly the way they have it because that is what works best for them. Exclamation point.

    I postulate that many of these new platforms are simply on-line versions of existing off-line businesses and we'll see their number increasing in the future, not consolidating.

    Greenwich Associates reported in April that "strong growth in electronic trading activity last year pushed electronic foreign exchange volumes above 60% of the overall global FX market for the first time." That means nearly 40% are still out there to be captured. My prediction is that only a small amount will go to the traditional platforms, and that the vast majority will go to new ones.

    And I am convinced that this prediction will stand the test of time. You can quote me on that.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Aug 15 2:04 PM | Link | Comment!
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