Exclusive: Broadway Expands to Support Crypto Trading
Broadway Technology is extending its full software stack to support firms trading cryptoassets.
“We’re basically taking our entire software stack – which is already asset class agnostic – and making it available to both buy side and sell side firms that are trading cryptos. Fundamentally, what we’re trying to do is provide institutional market participants with much better software and access to what is a pretty volatile and challenging space for them to trade in,” explains Tyler Moeller, co-founder and CEO of Broadway.
This software stack can be used to power a firm’s entire risk management, trade management and e-commerce capabilities – meaning that it can be used for order routing, algo execution, quoting prices, hedging and risk and credit management.
Moeller insists that Broadway’s technology has always been designed so that it can easily be expanded and applied to different asset classes, and therefore the main technology challenge in the crypto space has just been adding connectivity to the various trading platforms.
At launch, Broadway is offering connectivity to four crypto platforms, and will be looking to add more as demand increases.
It is interesting to see a technology provider such as Broadway offering sophisticated software solutions for such a nascent market, but this is also probably symptomatic of the unusual way in which the crypto trading market has developed.
Traditionally, new markets emerge in the institutional space and then retail trading and high-frequency trading (HFT) subsequently develops later on as the market matures. However, crypto trading has been driven by retail activity and, because the products have always traded electronically, there is enough data available to HFT firms that some of them have begun regularly trading cryptoassets before other institutional firms have gotten involved.
While the fact that crypto trading has always been electronic, and in some ways very technologically mature, has made it easier for Broadway to expand its offering to support firms in the space, Moeller says that other elements of this market are more problematic.
“The fact that this market has been so retail driven means that many of the exchanges out there got thrown together pretty quickly, their APIs are really poor – they’re using web service APIs, they’re not particularly stable and almost no-one uses FIX Protocol. So this has been a blocker to institutional trading because it has meant that the reliability, stability and security of these exchange isn’t good enough,” he comments.
Moeller continues: “One of the things that we’re doing, by putting our risk management tools in front of these less stable exchanges and building out great connectivity, is to give big financial institutions the security and safety they need so that they can feel comfortable getting into this market that’s not institutional grade yet. Essentially, that’s what we’re bringing to this market: institutional grade software.”
On the execution side, Moeller also insists that there is demand for solutions like algos despite the relative immaturity of the crypto space, because institutions are looking for ways to help reduce their market impact.
“Liquidity and volatility are two of the really big problems on the execution side,” he says. “Bitcoin has some decent volumes, but as soon as firms start trading other cryptocurrencies they find that the volumes shown on the public markets are very light and highly volatile. In this regard, the market isn’t that dissimilar to emerging market currency trading, where firms need to have really good routing capabilities. If they want to place a large order, they can’t trade the size they need on one platform because they’d move the entire market against them.”
Moeller adds: “In addition to other algos we offer, we provide strong routing capabilities, but it’s not just a blind “fire and forget” route, we have a very smart router that’s able to look at what’s going on in the market, specifically looking at the microstructure of the market, and makes a decision based on what it’s seeing there. Minimising market impact is extremely important in this space, and so even things like simple TWAP strategies are very relevant here. This is why we’re actually seeing a lot of applicability of our algo products in the crypto markets.”
Other tools that Broadway offers are not so relevant to this market yet, although in some cases Moeller says that it is only a matter of time before this changes.
For example, Broadway’s technology can help firms route trading according to where they actually have capital and credit, but because both the custody and credit services around crypto trading are, respectively, in the early stages and largely non-existent, Broadway’s credit specific tools aren’t needed just yet.
“But I think that it’s inevitable, especially with larger institutions coming into the space and looking to trade cryptoassets, that credit will become an important part of trading and when that happens we will already have all the tools for managing that credit risk in place,” says Moeller.
Interestingly, Broadway is doing its deployments for crypto trading in the cloud, which is not a traditional place for trading systems to live. The firm is currently doing this because most of the trading platforms themselves are not co-located in a data centre and latency is not a key driver of the crypto market, but Moeller says that his expectation is that this will change over time and more of these platforms will shift into co-location facilities.
Reflecting more broadly on why his firm has chosen to expand its technology offering into the crypto space, Moeller actually cites the recent downturn in the price of crypto assets as one reason for the decision.
“What I saw was that as the prices were dropping the actual people who were doing the great research and development in these markets were completely unwavering and unfazed by the price change, and to me that was a testament to the fact that there is sound technology in these markets. The change in the price of cryptocurrencies doesn’t impact the value of the underlying technology,” says Moeller.
And it is this technology that represents the real value of cryptoassets, he adds, and this is why Broadway is getting into the action.
“I think that the underlying technology here is so fundamentally transformative. Once I clearly started seeing the power of things like smart contracts, for example, it became absolutely obvious to me that this technology is here to stay,” concludes Moeller.