Northern Trust Co. is delving into new Internet territory with a Web- based foreign exchange trading service.
The Chicago bank is the first to deploy a new system that it links with Dealing 2000, a Reuters system widely used by banks to match up buyers and sellers of foreign exchange. Reuters' new DealWeb takes advantage of standard Internet protocols, letting Northern Trust's institutional clients place foreign exchange orders directly.
The bank, which has $1.3 trillion in custody accounts, is adding the on- line trading capability to its Passport system, a five-year-old, Web-based service for private and institutional clients.
The addition of FX Passport brings Northern Trust a step closer to the "holy grail" of client services-an integrated look and feel across the board, according to Lawrence Tabb, group director for the securities and investment practice at Tower Group.
Many institutional firms cannot provide such a unified service because they maintain a variety of systems on the back end, he said. Integrated front ends will be needed to serve clients that are expanding their foreign operations and clamoring for better pricing, information management, and news, he said.
Philip Herndon, a Northern Trust product manager, said the bank plans to offer custody clients the ability to trade other products over the Internet, such as money market instruments and derivatives.
Eventually, a full set of Web-based trading services will be integrated into both sets of Passport offerings, he said.
Northern Trust's Private Passport gives wealthy private banking clients Web-based access to a broad range of information and accounts. Passport for corporate institutions offers reporting on trust, accounting, fund risk and performance, some analytics, and global overviews for multinational businesses.
Letting institutional clients place orders directly on the Internet also should reduce Northern Trust's administrative costs. Previously, the bank received orders via phone or fax.
Dealers are having difficulty making profits with increasingly tight foreign exchange trading spreads, Mr. Tabb said. From that perspective, Northern's move is defensive, he said.
Patrick McDougal, executive vice president and director of foreign exchange at Northern, said the new on-line offering is a "natural extension" of interbank electronic foreign exchange.
Building the system using Reuters' proprietary DealWeb technology helped ensure security, Mr. McDougal said. Though DealWeb uses open Internet standards, it is still run by Reuters as a virtual private network.
DealWeb lets Northern Trust define the types of transactions that it wishes to handle directly or automatically.
Though DealWeb is not an order matching system, it links to Dealing 2000 to offer FX Passport clients current interbank foreign exchange price quotes, in addition to Northern's own quotes. FX Passport will also display Reuters market data and news, as well as internally generated news, research, commentaries, and other market-related information.