Users blast multi-bank portals

The future looks bleak for the remaining multi-bank forex trading portals, according to delegates at the sixth annual ACI European Congress in Luxembourg late last month. Following the closure of two of five portals in the past six weeks – technology firm SunGard’s system and Atriax – 90% of congress delegates surveyed by Risk’s sister publication, FX Week, said they now believe multi-bank forex portals have had their day.

Many of those pointed to the move towards the provision of straight-through processing (STP) instead of tight pricing as one reason for their cynical outlook. As forex price transparency has improved, argued one electronic forex official at the event, corporate treasurers and fund managers no longer need to request multiple quotes. “Instead they can use one of the highly successful single-bank platforms out there,” he said.

The head of a currency management firm in London agreed: “If you are making large directional trades, you just can’t get the kind of service you do with a single-bank system.”

Delegates pointed to the perceived cost of setting up and running forex portals as a primary cause for their pessimism. “The business model doesn’t work,” said one delegate at the ACI event, who works in the online forex industry in London. “It’s just too expensive.”

The banks that owned Atriax – Citigroup, Deutsche Bank and JP Morgan Chase – reportedly ploughed up to $50 million each into the failed enterprise, and it was their refusal to supply further funding that finally grounded the platform last April.

However, it was also the huge investment costs poured into some of the remaining platforms – FXall, Currenex and State Street’s FXConnect – that the multi-bank bulls gave as their main reason for believing multi-bank portals will persist. “The portals will continue,” said an electronic forex official attending the congress. “It’s inevitable because of the investment and technology that is in place.”

A senior official at one of the banking owners of FXall pointed out: “FXall has 17 equity owners. If we’re all asked to put in another $10 million, we can. Atriax failed because it only had three banks to go to.”

One way of assessing the shift in emphasis in online forex is by looking at what the big vendors chose to push at the congress in Luxembourg last month. Both Bloomberg and Reuters, which focused on their multi-bank strategies at the 2001 ACI World Congress in Singapore, have looked to different markets this year. Bloomberg’s big push last week was for its new inter-dealer forex forwards system, PowerMatch FX. Reuters went for 2002’s buzzword – or buzz-acronym – STP.

In another telling sign, none of the remaining multi-bank portals – FXall, Currenex or FXConnect – chose to exhibit at the congress.

Correction
We incorrectly reported James Diggines’ affiliation in the May issue of Risk. He works for Alexander Mann Global Markets in London. Apologies.