SPARK Systems is a potential game changer in the foreign exchange (FX) space in Singapore.
The locally bred "builder of the next generation, ultrafast, resilient, low latency and efficient trading platform" wants to develop a Singapore-based FX marketplace for the 12,000 plus corporate treasuries based here, as well as the international banks.
Led by co-founder and chief executive Wong Joo Seng, it has already attracted US$15 million in combined Series A and B rounds of investments. This excludes a grant the Monetary Authority of Singapore (MAS) awarded to the company in September 2016.
"Our goals were aligned. Both MAS and Spark want to bring the FX marketplace to Singapore, which already has 12.5 per cent of the global FX market here,'' Mr Wong told The Business Times.
While Singapore is Asia's largest FX centre, and the world's third largest, global FX players do not anchor their matching and pricing engines here. Instead, every player is sending their orders overseas - namely to Tokyo, London or New York - for execution.
"Here is where Spark comes in. We are ultrafast, ultralow latency, resilient and cost-effective,'' Mr Wong said.
"On the fastest line available, it takes about 200 milliseconds for an order to reach New York or London, and another 200 milliseconds for the reply to come back. That's a total of 400 milliseconds,'' Mr Wong said.
"While this may be tolerable in normal trading days, during periods of volatility, there is a risk that prices can expire by this time,"' he said, adding that local traders can be trapped in their positions, unable to get out, or simply miss out on trades because prices have moved before orders are executed.
Mr Wong said 400 milliseconds assumes the fastest line available but, in reality, the time taken can stretch to 700 milliseconds.
"If you build a data centre here, you can get that done in 1 millisecond. It is a game changer,'' he said.
Cost is a major competitive advantage. Spark charges US$2 for every US$1 million worth of trades, compared to US$3 to US$10 banks are paying for using platforms such as Thomson Reuters-owned FXAll, FX Connect, Bloomberg or 360T. Each of these platforms can easily see volumes of more than US$100 billion a day.
"Spark's strategy is to build private platforms for hedge funds and all other high volume users of the FX market with each user trading volumes north of US$1 trillion per annum. Once we have built up a critical mass of clients, we can designate a move of the 'ecosystem' to Singapore by setting up a data centre and servers here," Mr Wong said.
"Potentially by then, the network could see trading volume of US$20-30 trillion because each of the clients we seek would come with volumes of US$1 trillion or more."
The company's efforts are beginning to gain some traction.
In March this year, Spark started its beta testing on its platform with Dymon Asia Capital. In July, it went "live" with Dymon Asia Capital, and has since seen its weekly volume surge to US$1.5 billion, from US$200 million. There are plans to integrate two more clients later.
By empowering participants to trade precisely, market growth is a natural consequence catalysed by technology, Mr Wong believes.
"We are not talking about displacing Tokyo, but if we can get 25 per cent of Tokyo's volume, and with volumes increasing, that will be some achievement,'' he said, adding that Singapore can be the alternative venue to Tokyo.