Agency brokerage BTIG is planning to double the size of its foreign exchange desk this year. The move comes as buyside firms—BTIG’s traditional customer base—are increasingly looking for alternatives to custodians for handling their FX trades.
“Traditionally, international equity buyside firms farmed out FX to custodians,” explained Alan Circle, managing director and co-head of FX at the firm. “But as they have seen volatility increase in the marketplace as well as their overall portfolio size, they’ve become a little more sensitive in trying to manage their FX trading.”
BTIG launched its FX desk last November and now counts nine professionals on board. Clients include global macro hedge funds, commodity trading advisors and some bank proprietary desks.
The desk is staffed 24 hours a day to cover Europe and Asia in addition to North and Latin America, and the firm plans to add sales staff in London, where many global macro strategy hedge funds are located. All told, the desk’s headcount will likely double in the next year, said Anton LeRoy, who oversees BTIG’s global business operations and the firm’s fixed income currency and commodities division.
The firm, best known as a stock trading house, recently added two sales traders to the FX desk—Jack Wagg and Joseph Acosta. Wagg previously worked at Newedge USA managing an overnight trading desk. Acosta was previously a director at QFS Asset Management, trading the firm’s currency, global macro and fixed income models.
Besides the staff-up, the firm is rolling out an aggregated e-platform in the next couple of months for spot FX in predominantly G20 currencies. The platform will aggregate 12 or 13 liquidity sources and will be more focused on low touch sales, according to BTIG.
Buy side firms are increasingly using FX agency brokers and algorithms rather than custodians to handle their FX trades because of lawsuits against firms that used custodians for FX trades. Those lawsuits have spotlighted how much money can be lost if a firm isn’t controlling the trading process, said Michael O’Brien, head of global trading at Eaton Vance.
He added that agency brokers provide a level of anonymity for spot, forwards and NDF trades because using them “can hide the client name from the street.” They can also provide buyside firms with more sources of liquidity than the firms can typically access themselves, because they have more active relationships with banks, O’Brien said. Algorithms are another way for buyside firms to be anonymous, he said.
One potential drawback, however, to using agency brokers is the possibility of information leakage, O’Brien said. “Once I put the info out there I no longer have control over it. It could be going to one bank, 10 or 30. You don’t know what the agency brokerage is going to do.”
The BTIG desk specializes in emerging markets currencies and FX options. It trades spot forwards and outrights in the major currencies, non-deliverable forwards (NDFs) and a range of derivatives from vanilla options to volatility swaps. NDFs involve payments that are made in dollar terms for Latin American and East European currencies.
“Clients can call at 2 a.m. and find out what’s been happening in the foreign exchange market and other markets as well,” said Marty Ferraro, managing director and co-head of FX at the firm.
The desk’s liquidity providers include 30 bank counterparties as well as some of the bank platforms and ECNs. “We do use multibank platforms on the margin as we do most of our business via voice,” Ferraro said.
Trading via voice helps build relationships with counterparties, he added. Plus, voice trading is often required for block-sized orders and less liquid products, according to LeRoy.
BTIG’s build-up in FX is part of a general expansion at the firm. It hired 50 people this year across all its products and expects that number to hit 100 by year-end, LeRoy said.
