The Game-Changing Minerva Algorithm and the Team Behind It

Advanced technology is closing the gap between institutional traders and Prime-of-Prime (POP) brokers in terms of premium execution. Minerva, a revolutionary algorithm-fuelled product by MFP Trading, has taken this a step further. It is turning hedging from a cost-centre into a profit centre, where institutions and retail brokers can earn more than the typical “pay the spread” approach.

We spoke to Head of Sales at MFP Trading, Francois Nembrini, about this innovative technology and what led to its creation. Francois brings with him 15 years of experience in the global financial services industry. Before MFP Trading, he served as the Global Head of Sales and Trading at London Capital Group. He was Global Sales Head at FXCM Pro/Fastmatch for over 13 years.

How has your experience contributed to the company’s vision?

While most people in the FX industry will either have expertise in the retail or institutional arena, I have had the chance to sit between both worlds for most of my career. Fastmatch, where I served as Global Head of Sales, was one of the largest institutional spot platforms (now part of Euronext). It was then still a part of FXCM, one of the largest retail margin houses at that time. This unique position gave me insight into both markets and clear ideas on the best ways to serve both customer bases.

What hidden opportunities did you see that may contribute to MFP Trading’s success?

The main issues in the institutional market is twofold. Firstly, market making is now concentrated among fewer financial institutions. The cost of technology to run a full FX market-making firm is high. Today, there are less than 10 major players in the market.

We have seen a couple of non-bank market-makers popping up recently, but it does not compensate for the many banks that have scaled-down their market-making efforts. Most banks focus on their franchise customers only, and even large banks, such as Citibank, have reduced their market-making services to a handful of platforms.

Secondly, increased regulation and monitoring have impacted trading strategies that are now allowed for market makers. For example, strategies using information from directional flow have been scaled down or stopped, for compliance reasons. At the same time, market-maker protections like last-look times have been shortened. As a result, focus is primarily on the easiest and most profitable strategies.

Market makers have become extremely picky now when it comes to flows. They look for customers with “perfect attrition curves.” This has led to a situation where liquidity is being sold at a premium price for most institutional traders; spreads are larger here. MFP Trading, with its advanced technology, has been able to customise liquidity needs for clients. This is where it has been able to thrive.

How is Minerva different from other trading tools?

Minerva is a unique tool that bridges the POP/retail broker trading interest with the institutional customer. It is a passive approach to execution, where clients show their interest rather than a typical “pay the spread” approach. It removes liquidity providers (LPs) from the equation for the POP/retail broker altogether.

Can you elaborate on how the platform does this?

In a typical “pay the spread approach,” the retail broker sends his interest to an LP, which will hold risk until it finds the other side of the trade in the institutional market. The LP then captures the spread for this service. Minerva does this job directly for the POP/retail broker. With Minerva, the POP/ retail broker becomes the LP to the institutional market directly.

Since brokers don’t need to pay spreads anymore, this results in a decline in trading costs. Moreover, Minerva brings in extra revenues for them, in the form of the brokerage rebate that we charge institutional clients for customised liquidity.

How does Minerva address hedging concerns?

If you are a retail/POP broker, Minerva will simply allow a more granular approach to risk management. In an A book, you get rid of risk immediately, while in a B book, you hold it for a long time. So, why not create an intermediate, or I, book with Minerva, where you try to match your interest with an institutional client, the same way bank LPs do. This is where Minerva fits into your hedging tools.

How does the MFP quant team equip brokers to make the best decisions?

Quants do the analysis to help brokers understand how much money they can make on their flows as an LP. It all boils down to the “attrition curve.” The curve answers questions like what happens to the market after the customer trades for 1 sec, 5 sec, 10 sec, 30 sec, 1 minute, and so on. Customers who have perfect attrition curves across all timeframes see extremely tight spreads. These attrition curves are favourable to market makers, allowing them to sit on the trades for a long time, without much risk.

Our team builds the attrition curve based on clients’ historical data. It then identifies areas where passive Minerva type hedging strategies will bear maximum results, compared to “pay the spread” strategies.

What is your vision for the future of MFP Trading?

I aim to make MFP the direct bridge between institutions and POP/retail brokers interest. We strive to help customers not to pay the spread, by providing deeper liquidity to institutions not found elsewhere in the market.

You will be presenting a workshop at the iFX EXPO International. What can brokers expect to gain from this workshop?

The workshop will be valuable for anyone interested in getting a detailed understanding on how institutional market makers make money on order flows. We will give an in-depth view of the concept of Minerva’s intermediate hedging book. We will also review a case study showing exactly how a flow can be assessed, along with savings from a Minerva-type hedging approach.

MFP Trading will be at iFX EXPO International 2022, being held at Palais des Sports, Spyros Kyprianou, Limassol, Cyprus, from June 7 to 9, 2022. Contact MFP for further information.