A Look Back and Ahead with President and CEO Vijay Kedia
By Ivy Schmerken, Editorial Director
Vijay Kedia has been CEO of FlexTrade Systems since 1996. Over the past two decades, FlexTrade has evolved from a startup to a major FinTech organization providing multi-asset EMSs and OMSs, TCA, advanced analytics and algorithmic trading technology solutions to leading institutions around the world. While FlexTrade started with equities, the company has steadily expanded its coverage across foreign exchange, options, futures, ETFs and fixed-income. With nearly 420 employees, FlexTrade serves clients in more than 20 countries, and operates offices in 18 cities in 10 countries.
On the milestone of FlexTrade’s 20th anniversary, Kedia offers his unique perspective on the past, present and future of the company and electronic trading technology in general.
What factors motivated you to launch FlexTrade in 1996?
Vijay Kedia: Two prior experiences were quite influential. First was my experience working at Bear Stearns on the program trading desk, which led me to appreciate the challenges buy-side firms faced as they had to fragment their trading on multiple platforms. Second, and equally important, was my experience at Fonar Corporation, the company which invented the MRI. While there, I was very involved in scientific programming and had the pleasure of working with some of the most brilliant engineers and scientists I have ever come across. At the time, I did not connect the dots, or think about what the FlexTRADER EMS could mean to electronic trading. Instead, for two years, I just wrote code non-stop at odd hours of the day and night to build the dream system I visualized based on my two distinctly different, but complimentary experiences, from the trading and scientific worlds.
As the system took shape, I asked my cousin, Rajiv Kedia, who was just finishing his Masters in Computer Science, to join me, and the two of us have been working together ever since on this unbelievable ride for which we see no end in sight.
The evolution of the EMS has dramatically altered the institutional trading desk. What has changed for the buy-side today as compared to when you first started the company?
Kedia: Fundamentally, it has equalized the trading capabilities of the buy-side and sell-side. In the early days, when large buy-side firms, such as BGI, started using our system to execute with multiple brokers, we found ourselves providing the same technology, but in a sell-side configuration, to multiple banks and broker dealers. We had buy-side firms using their version of the FlexTRADER EMS to route orders to sell-side firms using the sell-side version of the FlexTRADER EMS, and further slicing and dicing the orders before routing them to the exchanges.
As an EMS vendor, you offer a broker-neutral platform. How have platforms like yours brought value to the buy-side?
Kedia: There are a variety of benefits for a buy-side firm using a broker-neutral EMS. First, it allows them to spread their order flow across a large number of brokers, ECNs and dark pools while optimizing in real-time the algo selection, benchmark, urgency, aggressiveness and liquidity access for each order in the portfolios they are managing. For instance, a buy-side firm may want to keep its portfolio dollar neutral or sector neutral, or may have other cash management requirements to which no sell-side or broker algo is privy. With a broker-neutral EMS, such as FlexTRADER, they can dynamically control the execution rate for placed and un-placed orders to manage their desired portfolio-level execution characteristics.
Another reason is the vast amount of data the broker-neutral EMS can collate and process for the buy-side. This is paramount when considering the growing number of trading venues, fragmentation of liquidity, intra-venue and intra-dark pool order routing, as well as the complexity of order-flow interaction between the buy-side, sell-side, hedge funds and proprietary traders. The smart order router, or SOR, is also dealing with the complexity fueled by a multitude of maker/taker, tiered, inverted as well as other pricing models in the market. Once the data has been collated, the broker-neutral EMS will crunch all the information embedded in the orders and executions to perform real-time TCA to better guide the traders.
The end result is the EMS has evolved from being a link between the OMS and FIX routing to brokers to being a real-time hub, which analyzes vast amounts of transaction traffic. Today’s broker-neutral EMS measures the execution performance of brokers in real-time, and optimizes access to liquidity in an inter-connected yet highly fragmented marketplace.
FlexTrade has made several acquisitions in the past. Why was this important to the company?
Kedia: With every acquisition, the key objective is always two-fold: to deepen our technology knowledge while expanding the breadth and depth of our technology solutions. For instance, our first acquisition was TraderForce, a FinTech company in Paris, which offered incredible front-end expertise. By integrating their technology with FlexTrade, we have successfully built a large footprint of mobile and web-based EMS users in emerging markets.
Our acquisition of the ColorPalette OMS from Citi, which was part of their Lava acquisition, has greatly enhanced our expertise and presence in the sell-side OMS space.
Our acquisition of Derivix, which came with a sophisticated position management, risk management and scenario analysis functionality, strengthened our offering for trading derivatives.
Recently, we acquired iTBConnect, the only platform offering a smart order router for trading corporate bonds across multiple fixed income ECNs, which has been deployed at sell-side firms, hedge funds and buy-side firms. We have already implemented and integrated most of that functionality into the FlexTRADER EMS.
Reg NMS was a big regulation for the U.S. equities markets. Do you expect more regulations for equities and other asset classes?
Kedia: Regulators do not introduce new regulations for the sake of rule-making, but rather to address issues such as liquidity, fair access and risk. However, they cannot anticipate all the possible side effects of the regulations they enact to fix issues in the market. Regulators are thus always reactive while the traders are pro-actively trying to benefit from the complexity of existing market structure. It is therefore safe to say that both regulation and market structure will only become more and more complex with time. Whether it was Reg NMS yesterday, a tick pilot today or MIFID II tomorrow, EMS vendors have to constantly adapt their products to the changing market environment on a global basis.
What differentiates FlexTrade from other EMS providers?
Kedia: In short, it is the depth and breadth of our offering in multi-asset trading technology. As you can tell from some of the acquisitions, FlexTrade prides itself in providing clients with true expertise and functionality in each of the asset classes it supports. We are continuously moving forward, with the same energy and excitement we had 20 years back. Whether you’re trading one asset class or several, we endeavor to cover all the contingencies a trader may face in the global markets. As the only EMS provider to have a large buy-side and sell-side presence, we bring a unique perspective to the buy-side based on our sell-side expertise.
Our clients use our platforms to trade global equities, FX, derivatives, and soon, fixed income, which encompasses our strength in providing a best of breed multi-asset EMS.
Our TCA offering, FlexTCA, which currently handles equities, FX and futures, is evolving to cover fixed income and other derivative classes to provide in-depth real-time and post-trade analysis in multi-asset electronic trading.
Our enterprise FX platform for the sell-side is used globally by many large banks for OMS and EMS functionality, managing client order flow, pricing and risk management, compliance and white label offering to bank customers for SPOT, Forwards, Swaps and NDFs.
For buy-side firms, we are the only FX EMS provider with FIX-compliant post-trade allocations and forward-points negotiations in production with netting across multiple value dates. For this to move forward, FlexTrade has provided a FIX-compliant middle-office-solution to multiple leading liquidity-providing banks.
Similarly, in the derivatives space, I can confidently say that no multi-asset EMS vendor has the depth of capability we offer. Our Derivix platform combines FlexTrade’s EMS technology with Derivix’ advanced functionality in portfolio risk management and scenario analysis. For traders who want to execute multi-leg options strategies, Derivix provides the ability to scan complex order books at options exchanges and aggregate their complex orders with matching or similar characteristics.
What makes FlexTrade’s customer service different from other FinTech providers?
Kedia: Our global support infrastructure. We have placed large, decentralized development and support teams close to the largest capital markets. These help us stay abreast of local trading requirements as well as provide local expertise in product and support. We have nearly 180 employees in the USA, over 100 employees in London, and approximately 80 employees in Singapore.
There has been some resistance to electronic trading in fixed income. What do you see ahead?
Kedia: Clearly the buy-side is eager to see the introduction of electronic trading, but the market is resisting that – it’s not really in the market’s interest to become more transparent. If we leave it to the market alone it may never happen.
However, that appears to be changing. Global regulators are keen to improve transparency, improve market integrity and enable the demonstration of best execution, so they could make it happen sooner rather than later.
Of course sophisticated market makers could force disruptive change. For instance, if two or more dealers choose to become fully electronic, they would gain an immediate advantage and leave the other market makers little option but to follow suit.
I’m confident, however, that five years from now we’ll look back and be amused at how manual fixed income trading used to be.
After 20 years, what are you most proud of?
Kedia: Oh, there are several things.
First, I am proud of the fulfillment of a vision. What started out as writing code at odd hours of the day and night has grown into a global company providing across-the-board trading technology maintained with the highest level of integrity and ethical standards.
I am equally proud of the passion for technology and research I see in our development staff. As a technologist at heart and from my own experience, I appreciate what out-of-the-box thinking can lead to and have always encouraged independent research and development. Our development teams are second to none and constantly work on new ideas, enhancements and features. And the results speak for themselves. For instance, all of our sell-side FX technology — from the pricing engine to risk management, and the white label platform and OMS — was built in our London office on their own initiative. Our mobile apps, used by many thousands of users for trading, alerts and monitoring, were built autonomously in our Paris office.
But what I’m most proud of are all of FlexTrade’s people – a team of over 400 who, individually and collectively, continue to deliver on the standards and objectives we set out to achieve 20 years ago. They are what will empower FlexTrade to continue to deliver excellence in products and service to our customers for the next 20 years.