Inside the tiny tech-driven market-maker eating the big investment banks’ lunch

XTX Markets is a small market-maker in London that has leapfrogged Deutsche Bank in the spot FX trading league tables and quietly attracted a number of senior employees from bulge bracket investment banks since spinning out from quant hedge fund GSA Capital in July 2015.

But within its Mayfair offices, you will not find many former investment bankers venturing out into a hot new start-up. Instead, it’s all about the code.

“There are some people with banking experience who can really understand our client base and the challenges they face, but it’s a small part of our headcount as that is not the essential ingredient,” says Jeremy Smart, XTX’s head of sales who joined in March from Royal Bank of Scotland where he was head of fixed income electronic distribution.

“We’ve recruited from the top tech firms like Google and Palantir, we are a young firm with young people and most people here code. We want smart people and great software, as that’s our competitive advantage.”

Smart says that the average age at XTX is 27, and it has some experienced heads on board in the senior ranks.

As well as Smart, XTX also hired Zar Amrolia, Deutsche Bank’s co-head of fixed income currencies and commodities, in September as its co-CEO. Its COO, Mike Irwin, comes from State Street where he was a managing director and ex-markets professionals from banks’ e-trading divisions proliferate its sales and trading teams.

Not a high-frequency-trader 

XTX is one of a growing number of ‘non-bank market makers’ and operates in cash equities, futures and commodities as well spot FX, where it’s risen to prominence thanks to gaining a 7.6% share and ranking fourth globally among the bulge bracket investment banks in the annual Euromoney league tables.

For traders, this is potentially a worrying development. XTX has just 67 employees, and most of these work in technology. There, the balance of power has well and truly shifted – it’s not a small band of highly-paid traders who are considered the ‘talent’, but instead it's seeking the best technologists and quants and will unearth that talent where it can.

XTX is keen to present itself as a genuine market-maker and not another high frequency trader. Smart says that its competitive advantage is not in buying super-fast hardware to give it a millisecond advantage like a HFT, but developing the right software to get ahead.

“We’re not a hardware-house/HFT, we’re a software house. It’s people, quantitative research, coding and risk management that give us the edge,” says Smart.

A 'start-up culture'

Large investment banks may spend billions on technology, they may have thousands of developers on their books but they’re also dealing with huge technology legacy and regulatory commitments that eat up tech budgets and restrict innovation.

“We don’t have legacy technology infrastructure that many banks have. There’s no hang up on formality, outside the management team we don’t have corporate titles, we simply value what people can bring to the business,” says Smart.

XTX Markets doesn’t provide figures on pay, but says that it offers “the most competitive” remuneration in the financial or technology industries. Smart says that it’s something of a “start up” culture.

“Everyone has to prove themselves – our co-CEO has 25 years in trading with an incredible track record, but still has to demonstrate what value he can bring to the business,” he says.

Both Smart and Amrolia are examples of senior trading professionals who have quit large institutions for a tech-driven start-up. Smart says that banks have become weighed down by regulatory costs and legacy infrastructure and are no longer cutting edge places to work.

“When I started, investment banks were focused on clients, growth and innovation and attracted the best and brightest,” he says. “The crisis has forced them over the last few years to become more internally focused on managing capital, conduct remediation and cutting back on technology investment.”

So, why join XTX specifically?

“For me it’s important to be at the cutting edge of markets. I feel like I’m doing that at XTX – I’ve worked in electronic trading for 15 years and still feel like I’m learning something new every day.”