TransFicc builds its own datacenters to cut outsourcing costs

Fixed-income connectivity provider TransFicc is building out its own datacenters in a bid to lower costs for customers of its hosted API service by cutting out outsourced infrastructure providers.

“Most banks are migrating over to using external vendors because these people can do it cheaper than the banks can do it themselves,” says TransFicc co-founder Steve Toland. “However, these external vendors are still expensive, so we decided to do this ourselves.”

TransFicc’s core product is a client library within a hosted API, which provides a single point of connection to a range of fixed-income and derivatives venues, including Tradeweb, MarketAxess, and BrokerTec. The API takes in market data, streaming prices, request-for-quote (RFQ) workflows, and post-trade data.

According to investors in the company, TransFicc’s client roster comprises eight banks, including large Tier 1’s, and two exchanges. For banks like TransFicc’s customers, networking equipment and building servers is expensive, and many outsource this to managed service and infrastructure providers.

TransFicc was established as a software provider, and never considered building hardware until around 2020, Toland says. In its early days, the vendor contracted with a large cloud provider in London, signing a month-to-month contract.

But as TransFicc started gaining clients in the US, it realized that it needed to establish points of presence in other geographies. The problem was that the contractors it found in those places only offered long-term agreements, and TransFicc did not want to be locked into expensive contractual relationships for years at a time.

“We decided to do it ourselves rather than have someone do it for us. We realized that if we don’t do this ourselves, it would be operationally harder to change as we grew. There were big financial savings and better control,” Toland says.

TransFicc started building its New York datacenter infrastructure in early 2021. The vendor now has two more datacenters up and running in London and Milan, with a third set to go live in Frankfurt in October.

In each datacenter, TransFicc employs Equinix’s raw rack. Its network engineers build its own servers, switches, and firewall ports on top of that. Because the vendor’s solution is software-deployed, all these components can just go on top of the datacenter for deployment.

“By bringing the hosting in-house, we can pass on savings, and the auto-deployment allows us to reconfigure as customers’ requirements change,” Toland says.

While it costs money to build the servers and networking equipment, Toland says cutting out an intermediary has halved the company’s costs. And it has greater control over its connectivity. For instance, TransFicc now has more direct management of onboarding clients onto different trading venues, enabling it to connect clients to these venues faster.

“The idea is that if we have our own datacenters all dual-connected by large pipes, and venue connectivity in place, we can connect a customer to a new venue in a week,” Toland says.

He adds that TransFicc having its own datacenter offers a latency advantage. “It makes a huge difference in markets like MTS, BrokerTec and [BME bond trading venue] Senaf,” he says.

In venues like MTS, trading firms like to be co-located with the exchange’s matching engine for lower latency. This is a big concern for TransFicc’s larger, price-making clients, but co-location takes time and resources to establish. MTS and others offer co-location for market participants and market data consumers within the venue’s primary datacenters. TransFicc’s hosted API can connect to the trading venue.

Toland adds that the move also introduces more redundancy to the system. TransFicc deployed its infrastructure so that there are always two circuits running simultaneously to avoid a single point of failure. In case of a datacenter crashing, clients can continue trading on their disaster recovery datacenter.

TransFicc was founded in 2016, and incubated in Citi’s Innovation Lab and the Singapore government’s tech accelerator. It has since gotten investment from a range of banks and private equity firms, including HSBC and ING Ventures. Most recently, TransFicc received $17 million in a Series A top-up in March, and is focused on growing its engineering teams as it looks to expand into more geographies and add more connectivity to US bond, repo, and derivatives markets.

Much of TransFicc’s attraction for banks lies in its potential as credible competition to Ion Group, fixed income trading tech’s dominant player and aggressive acquisitor. Ion, whose dominance has long disturbed market participants, has more reach than the smaller vendor, and its investor banks want to help the latter grow and connect to more venues.

TransFicc this year launched an e-trading desktop interface that connects to its core API, helping to round out its service and bring it closer to rivaling Ion’s offering.