William Essex: So let's get the obvious questions out of the way first. What are you doing, and why?
Peter Green: We appeal to both the buy side and the sell side in the derivatives and cash securities trading industry. People come to us needing a provider to give them market access. We are offering API access to a wide range of exchanges around the globe accessing futures, options, derivatives as well as the underlying cash securities, commodities products and even FX. Thus, we see Object Trading as providing access to a wider range of exchanges than we were able to provide until now.
Peter Green, CEO of The Kyte Group
William Essex: Object Trading?
Peter Green: Yes. It's important that you understand, we are not providing the market with proprietary software of any kind. We are a facilities provider. We have teamed up with Object Trading who are the developers of the software; we are presenting it to our client base in a manageable and accessible way.
William Essex: How big a change of direction is this for Kyte Group?
Peter Green: This is an evolutionary step rather than a change of direction. What we have seen in the last few years is the appearance and immediate success of the MTFs. We have diversified away from our traditional derivatives, fixed-income arena into the world of equities over that time. We are enabling our existing client base to expand into these new exchanges as well as bringing in new business where a desire to get global access to as many different products and exchanges as possible is absolutely essential for the typical high-frequency trader, particularly those who have developed an algorithmic trading model that they have proven on one exchange and now want to roll out across as many exchanges as possible.
William Essex: Your target market is high-frequency traders?
Peter Green: Our approach in recent years has
been to focus on high-frequency, ultra-low latency trading
groups. For us, their typical trading style is high-frequency,
and we make our money by charging commissions. Even though we
might be charging aggressively low commissions, it's still
important to our income stream because of the excessively high
volumes. From a risk perspective, a lot of these trading groups
will have a very short time frame to their open positions in the
market. We could be talking minutes or even seconds, so we're not
sitting with groups that are carrying massive positions
overnight, which is where the biggest risk to any clearer would
We are very interested in speaking to people who are very technologically minded and sophisticated in terms of developing their own software, particularly those that want to write directly to an API rather than using off-the-shelf software.
Under the bonnet
Kyte Direct Market Access is a light touch, high capacity, low latency solution available via the industry standard FIX protocol (KYTEFIX) or a function rich proprietary API (KYTEAPI) for both order execution and market data.
Kyte is using Australian connectivity specialist Object Trading to deliver multi-venue connectivity via its proprietary FrontRunner infrastructure. The exchange venues which will be available via KYTEFIX or KYTEAPI, are five cash equity destinations and 11 exchange traded derivatives markets.
William Essex: What can they get from you that they don't get elsewhere?
Peter Green: They will get a very progressive and cutting-edge offering in terms of where our servers are based, in the sense: co-location in the same data centres as the exchanges' matching engines. We will offer a range of different APIs because certain APIs are particularly focused on one asset class or exchange, so our breadth of APIs will apeal to customers wanting that kind of greater market access. We will provide one consolidated daily statement covering cash securities and derivatives.
We are flexible in terms of being able to tailor-make a client offering. For example, we have guys who want to trade the Eurex, but want to base their trading decisions on data that's coming out of the CME in Chicago or LIFFE in London. Where should we locate our servers? We'll look at speed of light, distance, number of trades, and perhaps come up with, say, the Canary Islands. It will all be to do with the speed of getting the information into their magic boxes. If you were to go to a large investment bank, because of the scale and nature of their institution, typically they might say, we have a data centre and it's here and it's what we can offer you. It might be that they can't be flexible in allowing customers to set up as they wish.
William Essex: Do you think of investment banks as a source of clients?
Peter Green: We see them as a source of clients, yes. We have relationships with prime-broker investment banks that have delivered clients to us because they can't cope with the intricacies of the requirements of certain types of trader that would suit us very well. It could be that certain clients don't generate enough income for the clearing banks because they're not leaving enough money on deposit as margin.
William Essex: What's in it for you?
Peter Green: We make our money through commission, so the more people trade with us, the more income we generate. Whether it's existing clients looking to expand and diversify, or new clients looking for something they can't find elsewhere; both work well for us.
William Essex: What about external factors? What difference has the market made?
Peter Green: We've seen some benefit from what's
happened in the market over the last year. Some of the big
investment banks are refusing to take on small customers with
small balance sheets because they no longer fit with their
charter as clearers. The advent of the MTFs has been very good
for us too.
In terms of volatility and the scary stuff, we've brought in very hands-on risk management for our clients. It's not that they don't know what their risks are; we've brought in tools to enhance what they're doing already. We are also sensitive to the low interest-rate environment. which is going to cause a lot of the active money to shift away from traditional markets and more into energy, commodities, emissions trading.
William Essex: What does this move tell us about your long-term strategy?
Peter Green: We've seen for quite a few years now that there is a never-ending arms race, a need for speed, and everybody's talking about microseconds not milliseconds. We need to be there and know that we are as fast as our competitors if not faster.
We also recognise what's going on in the banking world. There are too many disgruntled bank traders who are not being rewarded in the way that they may have been, and who are no longer seeing the bank as the safe employment they want in the long term. What we have seen in the last six months is a significant increase in enquiries from bank traders who are looking to leave the bank and set up independently. If they were running algorithmic trading within the bank, they will need to write from scratch. They will also need the infrastructure and the hand-holding that the bank used to do for them. We are very keen to explore opportunities with bank traders who want to set up independently.
William Essex: What does the future hold?
Peter Green: What we are doing has no capacity constraints. We are committed to continuing to invest. What we see is a great opportunity: the traders who have become less attractive to the banks have become more attractive to us. There is a growing pool of proprietary trading talent in today's markets which will dramatically benefit from this kind of access to trading venues. It puts them level with the very fastest professional trading systems in the big banks and brokerage houses.