Best FX Liquidity Provider and Most Innovative Liquidity Source: XTX Markets

There is rarely agreement on the streets of foreign exchange, but remarkably, there seems to be a consensus emerging on one thing: if any non-bank market-maker has a chance of becoming as genuine a liquidity provider as banks are viewed today, then it's XTX Markets.

The one-year-old company was created as a spin-off from GSA Capital, under the leadership of Alex Gerko, co-chief executive of XTX Markets. Gerko and GSA have been a significant presence in foreign exchange for years, but they were more part of a select group of alternative market-makers than a standout leader of the pack.

Since the spin-off, however, Gerko has added several FX heavyweights to the team. Zar Amrolia, who was head of currency trading at Deutsche Bank when it came to dominate market share rankings, joined as co-chief executive in September 2015.

Two months later, Jeremy Smart left his role as head of fixed-income electronic distribution at UK bank RBS to become head of UK sales at XTX. In January, the company retained the services of Chris Knight, previously head of e-trading (east), FX, rates and credit at Standard Chartered, by hiring his company, Market Partners, to lead XTX's push into Asia-Pacific. Now an office opening in Singapore is on the cards.

We sailed through the test, both from an operational point of view and as a validation of our market-making model, which copes very well with volatile conditions and elevated levels of event risk
Zar Amrolia, XTX Markets

XTX's aim is clear: to become the number-one player in spot foreign exchange. For those in doubt about the group's commitment, Amrolia points to the night of the UK's referendum on its EU membership, as well as the consistent market-making that Gerko's team provided under the GSA brand on January 15 last year, during the now infamous Swiss National Bank move.

"We take our liquidity provision duties very seriously. Had we not been there during the event, there would have been less liquidity in an already thin market," says Amrolia, looking back.

This commitment and its hefty increase in market share over the past 12 months  earned XTX Markets the judges' votes for the top spot in the Best FX Liquidity Provider and Most Innovative Liquidity Source categories at the 2016 FX Week e-FX Awards.

One of the key drivers of XTX's rise has been what Amrolia calls the great liquidity unbundling – or the trend to entrust commoditised services in the hands of specialist providers with lower production costs.

"Banks will still have to service their clients, but some will choose not to manufacture and risk-manage themselves, and will partner with non-bank firms; banks don't make the telephone lines their employees use to contact their clients. FX liquidity provision is becoming highly specialised and it's unbundling," Amrolia told FX Week in January.

Good for business

Another driver is XTX's appetite, against the backdrop of banks' increasing reluctance, bar a few global players and a number of regional banks, and their inability to warehouse risk to the extent they used to. While volatility is historically a trader's friend, the excessive swings and increased headline risk posed by the unusual macro environment in the UK and the world has restricted the appetite of big players to trade any more than they have to.

"As a business, we are effectively long volatility, like all market-makers, and there are two things that can happen when volatility increases: spreads widen, which is obviously good for the business, and volumes go up, which again is good for the business. In this case, the amount of volumes going through the market has actually undershot our expectations," says Amrolia, describing the night of June 23, when the surprise result of the UK opting to leave the European monetary union played out.

"We sailed through the test, both from an operational point of view and as a validation of our market-making model, which copes very well with volatile conditions and elevated levels of event risk," he adds.

Customers describe XTX as a firm "building an outstanding reputation for firm liquidity, in size, across all market conditions". One counterparty said that given the performance of XTX in deliverable currencies so far, they expect the firm to push into new areas too. "I think they have a lot to offer the NDF market in the future," said a customer.

XTX is preparing to do just that, having invested in its infrastructure for additional capacity, as the company scales up for trading US stocks.

"We are in a pretty good place. The process of this will be completed in the next six months and we are fully confident we can satisfy all client requirements," says Amrolia.