Trading places: How a Scots technology firm is opening up global markets

Gordon McArthur, CEO and founder of Beeks | contributed

For the last 25 years, traders in financial markets have invested heavily in technology to drive dealing faster than the blink of an eye.

The phenomenon, known as “high-frequency trading” (HFT), was immortalised in “Flash Boys”, a 2014 book by American writer Michael Lewis, which unpacked how shares and other financial instruments such as futures, options and foreign exchange contracts are bought and sold at lightning speed on big exchanges from New York to London.

Such traders thrive in times of volatility – like the geopolitically febrile moment we are living through as oil, stock and gold markets gyrate on each spasm of the Iran war. We are now in a “golden age of arbitrage”, as Hoover Institution visiting fellow Patrick Foulis recently put it.

Exchanges have been keen to attract HFT firms because more trading activity means more revenues and more liquidity. They have built data centres in which such firms, which usually trade on their own account, can “co-locate” their computer servers next to the exchange’s matching engine to shave crucial milliseconds off the time it takes for trades to be done.

Now, a business based in Scotland is writing the next chapter in this story. But it’s not aiming at the big HFT firms. Instead, it’s levelling the playing field for the smaller firms and regional exchanges around the world for which for which speed also matters.

Helina Andhee, Chief Officer, Capital Markets, JSE | contributed

Known as Beeks – named after Clarence Beeks, a character in the 1983 film “Trading Places” – the company has devised technology allowing improved and more cost-effective access to exchanges beyond the world’s biggest financial centres in places like South Africa, Singapore, Canada and Australia. Bourses there want to attract proprietary trading firms because they bring trading volume – as happened in New York and London.

Yet the plumbing involved in connecting to an exchange can be expensive. Hooking up to exchanges in unfamiliar jurisdictions and importing your own equipment is tricky. Then there’s the expense of equipment maintenance.

Beeks says it has taken the cost and hassle out of the equation. Under deals struck with exchanges, the Scottish company installs its own cloud-based technology, known as Exchange Cloud, in the exchange’s data centre instead of the trading firm having to install its own kit. The exchange in turn offers this out as a service to prospective trading firms, so they can connect to the exchange seamlessly. Some exchanges pay Beeks a fee for this, while others have a revenue-sharing arrangement.

“Our model is, if you’re not an HFT and you don’t absolutely need to be the fastest in the world but speed is still important, we enable the exchange to offer the cloud – basically networking equipment and servers - out of the exchange’s data centre,” explains Gordon McArthur, Beeks’ founder and chief executive, in an interview at the company’s office in an industrial park in Renfrew.

Growing up in Glasgow’s Drumchapel and Bearsden districts, McArthur acquired the trading bug as a teenager. “I was weirdly obsessed with the stock market as a teenager,” he says, explaining that he tracked prices on the former Teletext system. “I’m not from a wealthy background and I remember thinking: someone’s made a lot of money today by doing nothing. I need to understand how this works!”

A few years into a job at IBM selling software to oil and gas companies, he started trading foreign exchange (FX) via a broker in the US but found he wasn’t getting the prices he wanted because the technology was too slow. “That was when the penny finally dropped. We are too far away. So I bought a server, found out the data centre the FX broker was in, and put it there in New York.”

Eventually, McArthur left IBM and started Beeks in 2011 with his own money. Six years later the business listed on the London Stock Exchange’s AIM market, raising £7 million and allowing McArthur to pay off his mortgage and invest in the business.

The Johannesburg Stock Exchange | contributed

Since then, Beeks has signed up six customers - starting with the Johannesburg Stock Exchange (JSE).

Helina Andhee, the JSE’s chief officer, capital markets, says Beeks has enabled the exchange to expand its colocation capacity without having to make up-front investments to expand cabinet space in its data centre, allowing it to bring on new clients without them engineering and maintaining their own infrastructure. These include two India-based proprietary trading firms which now account for about five per cent of the JSE’s trading volume across various asset classes.

“It’s really been a huge enabler for market access to South Africa for those types of new clients that we wouldn’t necessarily have been able to attract if they had to invest in heavy capital expenditure on their own,” she tells me.

Deals have followed with BMV Group, Mexico’s stock exchange, ASX in Australia, Canada’s TMX Group, which operates the Toronto Stock Exchange and, in December last year, a holding company for the stock exchanges in Chile, Colombia and Peru. Kraken, a crypto-currency exchange, signed with Beeks last year.

McArthur says demand is growing in Southeast Asia where Beeks – which employs 125 people - last year opened an office in Singapore, home to SGX Group, the local exchange.

Meanwhile back in Renfrew, a matte-grey Bentley in the company car park is a sign of how well things have gone for the 50-year-old Scot since his days watching prices on Teletext.

And – so far – it doesn’t look like Beeks has any significant rivals. “We make it easy for people to trade on an exchange,” McArthur says. “We’re the incumbent now.”