Why we invested in TRANSFICC?
Perspective, by Cat McDonald
Sympathy for the banks?
It is a ‘truth universally acknowledged’ that core banking systems suffer from outdated and complex legacy technology. But did you know that systems from the 1950’s still run more than 40% of the worlds banking systems? Or that some banks still have systems operating in pounds, shillings and pence?
This legacy tech issue hampers the world of trading as well as core banking, and the issue is particularly acute in fixed income.
The state of fixed income
Fixed income (i.e. bond trading) is the largest trading division, with over $700bn in bonds traded daily. It is also extremely fragmented and highly complex. With numerous data providers, hundreds of trading facilities (aka. “venues”) and several regulatory bodies, fixed income participants require thousands of updates per second, receive tens of thousands of messages per second and expect microsecond latency.
The connectivity issue
Given all this complexity, large banks spend up to $10m per year on external service providers just to stay connected. But existing connectivity “solutions” are outdated, meaning banks also require swathes of highly specialised engineers to keep these mission critical trading systems up and running.
As an example, to connect to the venue Bloomberg, bank engineers must wade through a 600-page API spec. It can then take up to 6 months to get connected and requires constant testing and updates thereafter. And did I mention, we estimate there are around 200 separate fixed income venues out there?
Add to this the fact that legacy fixed income vendors (one in particular), have a reputation for making the entire process as cumbersome as possible, and you might even start having some sympathy for the banks!
Which is why we are delighted to lead a £5.75m investment in TransFICC, a connectivity solution that reduces all that hassle for bank engineers.
How is TransFICC different?
TransFICC has conceived a new connectivity layer for banks. To put a complex thing in simple terms: TransFICC engineers do all the difficult building and maintenance, and then deliver this to banks through a simple, one-time integration. Via TransFICC’s single API, banks get flexible venue connectivity with continuous testing and maintenance. As a result, banks can onboard a new trading venue in a matter of minutes rather than months.
TransFICC is a no-brainer solution for fixed income players, who no longer need to waste specialist engineering skill maintaining the commoditised elements of the trading tech stack.
TransFICC’s current clients include 5 global investment banks and 1 global market data vendor. They also have an extensive pipeline of exciting and high-profile prospects. The £5.75m investment will be used to extend product and market coverage for existing and new clients.
What about the team?
The founding team have a history working together as executives at the LMAX Group, a global financial technology company which operates multiple institutional execution venues for electronic foreign exchange and crypto currency trading (a company renowned for its technical competence!). TransFICC CEO Steve Toland was Head of LMAX Interbank (after leading global sales for Market Factory, FX Sales at ICAP and Sales for Americas at Thomson Reuters) and his co-founders Tom McKee and Judd Gaddie are the technical masterminds and were previously senior software developers, at LMAX.
Have we seen this before?
The banking industry is increasingly faced with fragmentation, uncertainty and regulatory scrutiny. Given this, it is no surprise that we have seen this transition play out across other trading divisions. One such example is, MarketFactory who have built a single API to connect over 80 currency exchanges to solve fragmentation and market data in FX. We believe Fixed Income, a market a magnitude greater than FX, will shift next.
Where does this bring us?
We believe the traction and strategic interest demonstrated to date, paired with the team’s experience at LMAX, puts TransFICC in a unique position to disrupt this global market. We at Albion are thrilled to support the impressive TransFICC team alongside a strong syndicate of investors, including new investors ING Ventures and HSBC and existing shareholders Citi, Illuminate, Main Incubator (Commerzbank) and FinLab.
This is the third fintech deal we have led in 2020 following Concirrus and Credit Kudos and joins our portfolio of companies selling into large financial institutions including Quantexa, Elliptic and Imandra.