Start-up reduces forex risk in trading foreign shares

A local tech start-up that almost went under a year ago is poised to strike deals with major financial institutions around the world.

M-Daq has a compelling story beyond its funding near-miss: It has developed software that allows shares to be traded in an investor's local currency at a fraction of the usual cost.

Chief executive Richard Koh told The Straits Times: "Investors can trade foreign stocks in their own currency without worrying about profits affected by swings in exchange rates."

And those trades will be cheap, he added, noting that an investor could pay as little as two basis points - known as bps in the financial industry - in foreign currency conversion costs for a transaction that could be as high as 200 bps.

The technology, for which it has received two patents, lets investors see the prices of the overseas stocks in the currency they trade in.

For example, an investor here keen on American tech giant Google would see the company's shares in Singapore dollars, which means he can better judge when to buy and sell.

M-Daq has secured a 15-year contract with a large Asia-Pacific securities exchange, which will incorporate the technology into its own infrastructure by the second half of next year.

M-Daq chairman Wong Joo Seng said: "Earlier this year, this exchange paid us about US$600,000 (S$750,000) to test our technology before it found it suitable to sign the contract with us."

The firm is also working with a major stock brokerage in Asia but Mr Koh declined to name it. It is in talks with exchanges in Hong Kong, London, Tokyo and New York as well, said the former investment banker.

M-Daq's technology involves streaming the foreign exchange rates from the world's top 10 foreign currency exchange banks - including Morgan Stanley, JP Morgan, HSBC and Credit Suisse, which account for 80 per cent of the global FX market - into its system. It picks out the best exchange rate and automatically adjusts the prices of the shares so an investor knows that the prices he sees are what he will trade in.

Mr Wong said: "The current structure does not protect the investor. Currency exchange is opaque, which lends itself to abuse in that brokerages and banks can levy high exchange rates. With our technology, the exchange rate becomes transparent."

Chief financial officer Lee Yaw Chyun said that M-Daq is the first company in the world to do this. It has no competitors. The start-up has raised nearly S$22 million this year that will be used to deploy its software around the world.

But getting to this point has been a hairy affair. The firm almost died in October last year when it ran out of funds. Mr Koh and Mr Wong coughed up about S$250,000 each to keep the company going.

The management team, including the chief technology officer and chief financial officer, stopped paying themselves salaries. When this was insufficient to stem the bleeding, the rest of the 15-man company also went without salaries.

Mr Wong said: "When we finally received the funds we raised, we could restore some of the salaries to earlier this year. It was character-building for the company. The experience bonded us closer as a family."

The lesson he hopes other start-ups could learn is that founders should not be overly concerned about diluting their equity.

"We had a chance to raise more money initially but we turned it down. From this experience, it is always better to have more money so that we don't have to waste time raising funds every six months."

The two founders, Mr Koh and Mr Wong, hold 33 per cent and 9.4 per cent of the firm respectively.

Key investors include venture capital company GSR Ventures with 19 per cent, GK Goh with 8 per cent and Citi Ventures with 4 per cent.

chngkeg@sph.com.sg

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