Spectrum Markets, the pan-European securitised derivatives exchange, has seen demand for its low-cost, 24-hour trading venue grow steadily during the COVID-19 pandemic, as retail investors that were stuck at home increasingly sought to trade on-demand, independent of traditional exchange and market opening hours.
Increased volatility during this period has also brought many new investors to financial markets, attracted by the opportunity to deploy a range of different strategies when taking a view on specific situations. The Turbo24 products listed on Spectrum allow retail investors to benefit from rising or falling markets across a range of major asset classes, and the venue’s transparent open order book ensures fairness among all participants.
In February Spectrum executed its two-millionth trade less than 18 months after launching, with more than 27% of these taking place outside of typical European trading hours (i.e. between 17:30 and 9:00 CET).
Christoph Lehl is Chief Operations Officer at Spectrum Markets where he led the build from scratch of its cutting-edge, digital Multilateral Trading Facility. He is known for his operational and IT expertise in regulated markets, with former roles including Eurex and Deutsche Börse.
What has been the traditional approach to financial technology innovation in your space?
With the advent of electronic trading around 25 years ago, two main paths emerged.
The first used superior computing power to solve the complex mathematical challenges involved in developing new and innovative investment products. The second was to use technology to distribute a product or service better or more cheaply.
As a brand-new player, Spectrum had the opportunity to design a trading model and service offering from scratch based on current customer needs, without being dependent on legacy systems or products.
How has this changed?
Over time this sort of computing power has become more accessible and, especially over the last five years, levelled the playing field once again. Consequently, many financial services players have resorted to more traditional forms of competition to win customers.
Pricing, in particular, has become much more competitive, and there is greater transparency on fees, costs and business models, allowing market participants to better compare brokers and venues and select the best provider for their needs.
As with other markets like internet shopping or telecommunications, traders now look to change their broker more often, depending on the terms and services offered.
This is especially the case in the securitised derivatives space where you own the investment product directly, independent of the broker, meaning your investments are entirely and easily portable if you change provider, a bit like how you keep your phone number when you change carriers.
We are in our second year of operation now, and I’m pleased to say that so far no major change has been required from our initial design. Of course, we are constantly evaluating, tweaking and making improvements in response to the experiences and feedback of our users, and we will be expanding the range of products listed on the exchange, but the whole venue was designed and built with the next 10 to 15 years in mind, so we expect to be able to continue on the path we have laid out.
Is there anything that has contributed to the culture of change inside the company?
In our short history we have learned that it is not enough to simply have the most up-to-date technology, as there are partners who want to work with us that run on incompatible, legacy systems.
We have therefore embedded multiple aspects of backwards compatibility into our systems, to ensure that all partners have a similarly seamless experience, regardless of the state of their own technology.
Doing so has contributed to our own culture of innovation, but also enabled a stronger culture of change in the partners that join the platform. By making it easy for them to offer clients the latest services and capabilities, we help them embrace new and innovative ways of thinking and working.
What Fintech ideas have been implemented?
The foundational idea of our whole design is to use a fully digital value chain, not only for trading but also for ancillary services like listing of instruments and oversight. This enables us to list new instruments intraday, reacting quickly and directly to market movements and demand.
What benefits have these brought?
Using full digital processes and standard interfaces makes it very easy for members to connect to Spectrum and minimise setup time. In addition, this helps to ensure ongoing low operating costs for all stakeholders.
Digital processes are combined with an on-site operations team that provides 24 hour-a-day assistance if members or issuers experience any problems in their digital processing. This helps to avoid new risks caused by issues in the digital chain.
Do you see any other industry challenges on the horizon?
Yes, the big challenge that I see is the speed of innovation in the financial area. Only the most nimble businesses can react effectively to the rapidly evolving behaviour of traders, as well as changing and unpredictable markets that will shape the industry, such as the new forms of social trading and investing.
Digitisation combined with technical progress enables easier market access for new and innovative players that will raise the bar in all areas of the financial industry. This innovation will further improve transaction speed and costs, for example by introducing greater competition in the settlement space with new technologies or alternative business models.
Can these challenges be aided by Fintech?
Absolutely. Fintech will be one of the main enablers of change, together with other areas of technology such as cloud computing or low-latency, cost-effective networks. In the settlement and reporting arena, fintech innovations that use blockchains to document transactions will have a disruptive effect comparable to the shift from physical trading floors to electronic platforms.