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The Battle for Liquidity: FXall Fights Back

With little said since its formation in June, the November announcement by FXall that it has selected its technology partners turns up the heat on the race to establish the FX industry’s premier e-marketspace. Using the technology developed by Bank of New York (BNY) and AVT Technologies as the foundation for its Internet-based FX trading platform, FXall now appears to have a leg up on several of its competitors.

In addition to contributing the technology behind its iFX Manager platform, BNY has joined the FXall partnership as an equity participant. Richard Estes, global product manager of iFX Manager, says a lot of the functionality in iFX Manager – particularly the order management and multibank routing functionality – will form part of the eventual FXall platform, which is due for release in Q1.

iFX Manager, which launched about 18 months ago, was designed primarily for fund managers as a completely automated FX trade order management and execution system, covering spot, forwards and swaps in 100 currencies. Since fund managers require a lot more functionality than the average corporate customer does, the service was built to handle block order execution across numerous fund accounts.

BNY built the multibank execution management facility to route trade requests to connected banks, and integrate with customer trading or portfolio management systems for real-time data transfer. The architecture of iFX Manager is such that any bank with an Internet trading capability can be readily integrated.

“The beauty of the approach FXall is taking, is that it provides a way of leveraging existing proprietary systems by hooking them all into a seamless network,” says Estes. “So whether you’re using Cognotec, AVT, Reuters/Tibco, or your own network, you will be able to connect into the FXall platform.”

FXall promises to offer clients the ability to see and trade on live FX prices supplied
simultaneously by participating dealers, as well as one-stop liquidity in FX spot, forwards and options. It will also provide FX research and forecasts from participating firms, online order entry, routing and monitoring, as well as STP capabilities.

Technology Partners

In order to speed the integration process between the disparate systems used by the world’s banks, FXall has agreed a half-dozen alliances with technology providers to build their own links into the FXall platform. This is in effort to boost liquidity on the platform by getting as many banks connected as “painlessly and quickly” as possible.

In addition to the Bank of New York, AVT’s EchoFX technology is also behind three other FXall partner banks, including Dresdner Kleinwort Benson, Bank of America and UBS Warburg. Chase Manhattan also uses AVT technology in its e-commerce offering. EchoFX is based on AVT’s GenIDeal, a thin client, Web-based generic electronic execution framework that enables financial institutions to offer their clients real-time, executable prices, deal routing and electronic execution in any mainstream financial instrument. Straight-through processing is supported at the bank end by a range of interfaces to legacy back office, credit and pricing systems.

As one of seven technology partners announced so far, AVT will focus on building the core trade-routing mechanism for FXall, and will be one of the selected technology providers for dealer rate engines (along with Cognotec and Reuters/Tibco).

In addition to AVT, FXall announced strategic alliances with Cognotec, FNX, Reuters, SAP, Trema and Wall Street Systems (WSS), which have all agreed to develop connections between FXall and their bank and buy-side clients. Meanwhile, Andersen Consulting, which will be renamed Accenture on 1 January 2001, will oversee the integration projects.

On the banking side, Cognotec will connect its clients to FXall via its Internet-based platform for FX and money market pricing and execution. To date, Cognotec has signed 80 banks in more than 20 countries to its ASP-based FX AutoDeal Lite service. “The best way for a bank to continue to stay in the game is by supplementing its proprietary offering with links to wider electronic marketplaces,” says Albert Maasland, global head of marketing for Cognotec. “So we’re helping banks to have one basic system that links into whatever end distribution mechanism that may be required.”

FNX, which provides FX and derivatives trading services over the Internet, will integrate its Sierra Suite of real time risk, processing and settlement services with
FXall’s trading platform to provide participants with a “seamless STP environment delivered through both traditional software and ASP”.

Reuters will ensure that its installed base of clients using the Mercury FX system will be able to seamlessly move orders in and out of the FXall system.

On the client side, SAP, which provides e-business software solutions to the corporate finance community, will provide the integration between its clients and FXall for routing of trade, confirmation and settlement messages. Trema will create secure inter-operability between FXall and its treasury and risk management software, Finance Kit, to enable straight-through processing of FX transactions. WSS, which specialises in high-volume trading solutions, will provide STP for trade confirmation and settlement by integrating the front, middle and back office functionality of its system with the FXall trading portal.

Philip Weisberg, interim CEO of FXall, says these alliances will accelerate FXall’s time to market. “The name of the game is STP, so we need to co-operate with these providers to quickly move trades between systems,” he says.

Both Internet access and a private network will be available from the start. “I expect the bulk of clients will connect via the Internet, but those with different requirements (such as those doing very large numbers of transactions) would prefer a private network,” he says. Although he declines to say who will operate the private network, he does say it is a “market leader with ample experience building Internet platforms”.

Additional Investment

With the addition of BNY, FXall now has 14 bank partner banks. It has recently secured a second round of investment from Bank of Tokyo-Mitsubishi, BNP Paribas,
Dresdner Kleinwort Benson, Royal Bank of Canada, the Royal Bank of Scotland
and Westpac Banking Corporation. These six join the original seven FXall founding
banks – Bank of America, Credit Suisse First Boston, Goldman Sachs, HSBC,
JP Morgan, Morgan Stanley Dean Witter and UBS Warburg.

Sources say FXall has pledges from additional liquidity providers, although these could not be confirmed.

Battle for Liquidity

In the space of just a few months, the marketplace has seen a proliferation of multi-contributor platforms hit the market. But already, these numbers are beginning to consolidate.

Atriax has so far gone live with an indexed research and information product over its Web site, which shows aggregated research from the bank members. The site also includes Reuters real-time news and market data, as well as services offered by its third-party content providers. Execution capabilities, as well as confirmation and settlement will be added early next year. Trading is expected to be available in the second quarter of 2001.

Integral Development Corp’s online treasury platform CFOWeb, which launched in June, looks set to be integrated with Atriax (the multi-contributor FX portal founded by four major shareholders Chase, Citibank, Deutsche Bank and Reuters). The software company is providing the RFQ engine technology (similar to the software used in CFOWeb), and will be working with Atriax over the coming months to enhance and integrate the two systems.

Meanwhile, the main aspects of the BNY/AVT joint venture, MarketMarque, will now be incorporated into the more comprehensive FXall platform. BNY’s Estes notes that the bank will continue to offer its iFX Manager service to its institutional clients, although it will no longer pursue MarketMarque as a separate multi-contributor FX portal.

Besides FXall and Atriax, both of which have yet to launch an execution service, the buy-side led Currenex (which launched in April) and State Street’s FX Connect (which announced its first partner bank in May) have live online platforms. State Street, which operates FX Connect over a private network as a component of its Global Link platform, has said that it will connect its customers with other platforms if they demand it.

“If [our clients] want to go via FX Connect to execute an FX trade on FXall, that’s alright with us. It’s all about letting our clients access all the available pools of liquidity and offering them one window on the world,” says Stephen Smit, managing director, Global Link (Europe).

“The door to FXall is open for any and all providers to talk with us,” adds Weisberg. “We all agree that for this to work, we can’t mandate a single system for every bank in the world. A lot of banks have made big investments in technology – decisions that are now deeply ingrained in their cultures and operations. No marketplace is going to change the systems that people use, but ultimately, the clients will determine which platform prevails.”

Customer Advisory Board

FXall also announced the first members of its Customer Advisory Board (CAB), which consists of both corporations and investors, to provide feedback on FXall developments.

The CAB currently includes:

American Century Investments, Kansas City, Mo.
Cathay Pacific Airways Ltd, Hong Kong

Cisco Systems Inc, San Jose, Ca.

Government of Singapore Investment Corporation (GSIC), Singapore
Hewlett-Packard Company, Palo Alto, CA

HSBC Asset Management (Europe) Ltd, London
JP Morgan Investment Management, New York, NY

Levi Strauss & Co,

Mitsubishi Corporation, Tokyo,
Oracle Corporation, Redwood Shores, CA

Pareto Partners Ltd, London
Penta Finance Asia Ltd, Hong Kong,
Tudor Investments Corporation, Greenwich, CT

Profit & Loss

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