Investors Warm Slowly to Online Fx Trading
Wed Mar 20,10:20 AM ET
By Carolyn Cohn
LONDON (Reuters) - Corporates and institutional investors are getting braver about trading foreign exchange online, but have not yet thrown off their fear of internet trading, industry participants said on Wednesday.
Total foreign exchange volume traded online by major institutions more than doubled in 2001, financial research consultancy Greenwich Associates said on Wednesday, to $1.8 trillion in 2001 from $857 billion in 2000.
But the volume is a drop in the ocean of the $1.2 trillion a day global foreign exchange market, and sources say this is why two large multibank platforms, FXall and Atriax, are rumored to be in merger talks.
"There is a basic inertia by corporates to move to online trading," said Andrew Foulkes, director, corporate treasury services at consultancy KPMG.
"A group treasurer has a long list of issues to deal with, and online trading is not necessarily foremost."
Multibank platforms FXall and Atriax started last year, following in the paths of independent online provider Currenex and State Street's FX Connect.
FXall was started by seven banks, including Bank of America and Goldman Sachs . Atriax was founded by Citibank , Deutsche Bank , Chase Manhattan Bank and Reuters Group .
THE MORE THE MERRIER
Industry analysts speculate FXall, Atriax and Currenex all carry volumes of upwards of $1.0 billion a day each over their systems and have been instrumental in causing an upturn in online volume. End users can also trade online via banks' individual dealing systems.
"Uptake was huge in 2001, and mainly for two reasons -- Atriax and FXall," Greenwich consultant Tim Sangston said in a statement.
"The arrival of these two giants into the arena last summer made the savings earned by a decided minority of top-tier accounts impossible for the rest of the market to ignore."
Greenwich said its research showed the multi-bank portals (news - web sites) were capturing market share from single-dealer sites.
"The buyside are seeing that with multidealers they can get a whole bunch of dealers at their desktop all at once all effectively bidding for their business -- and that's pretty attractive," said Peter D'Amario, consultant at Greenwich Associates.
But industry sources say disappointment remains at the relatively slow take-up of online trading, and this has driven the two multibank portals to merger talks in recent weeks, although neither side confirms that talks are taking place.
SPECIAL RELATIONSHIP
The structure of the multibank system, with other banks joining the original founders of a platform as market-makers, may deter end-users, who tend to have relationships with particular banks, industry participants said.
"Sometimes people weren't trading electronically because their custodian banks were with a different system," said one investment manager.
Cost savings from straight-through processing (STP), the ability to complete a trade from dealing to settlement in one process, have also been slow in coming.
"It's difficult to make STP work, because everybody has different treasury systems," said Foulkes.
"If STP becomes reliable, that would be a real incentive to trade online."
But the good news for FXall and Atriax is that any merger between them was likely to be beneficial for the fx online industry, industry analysts said.
"A merger would make a difference, as it would bring them closer to being a genuine multibank portal," said Foulkes. |
