Atriax must be the worst-kept secret in finance today. Those in the foreign exchange business have been talking for months of Atriax, the latest in a series of ForEx-trading Web sites, though its supposed creators, Citigroup, Chase Manhattan Corp. and Deutsche Bank, won't comment on the rumors.

If Atriax materializes early next year, as expected, it will join a half-dozen online ForEx-trading forums that have all but one been created within the past 12 months.

Among them is FXalliance, known as FXall, which is slated to go live before year's end. Atriax's founders reportedly considered participating in that 13-bank portal, which was announced in spring. (Contacted by Bank Technology News, Chase and Reuters, the supposed technology provider to Atriax, refused to comment on the venture-despite reports of its coming in both the domestic and foreign press.)

Banks and others are prompted into streamlining the process by which currencies are traded for similar reasons as prompted stock, and more recently, bond trading to go online. These institutions are motivated both by the benefits of automation and the threat that others will make such services available to customers first.

With 88% of ForEx trading done manually versus just 67% of equity trades, it's early days in the automation of ForEx trading. That, combined with the fact that currency trading represents the biggest single market, suggests what a huge opportunity this is. About $1.5 trillion worth of foreign exchange transactions are done worldwide every trading day.

Traditional institutions are trying to avoid making the same mistakes in the evolving ForEx market as they did in equities, sources say. In the equity market, upstart rivals to traditional stock exchanges-Electronic Crossing Networks (ECNs)-took away substantial business before investment banks began to create their own ECNs to automatically connect buyers and sellers.

Banks are hoping that automating ForEx trading will allow them to save money while broadening their customer bases. Today, the typical way currencies are traded is that a corporate treasurer calls a trader at his bank and is quoted a price based on the size of the trade and, possibly, relationship considerations. The treasurer may call around to a few banks. When an order is placed, the trader writes it on a piece of paper and hands it to a clerk to key in.

This system presents numerous problems. First, since only large corporations qualify for such trading relationships, lots of smaller companies get largely cut out of the ForEx market. Second, the system is inefficient on both sides. Prices aren't immediately obvious to the buyer and may fall across a wide range-in the jargon there's a lack of "transparency" and a wide "spread." Third, the delay in consummating transactions can make both sides nervous that the market will move against them. Manual processes limit the number of deals traders can handle, while the manual order entry system creates more possibilities for error. The trading firm's liability can be significant if, say, it double books an order for a trade while the market moves against the position it took.

The thinking is that buyers would be happier if they could get side- by-side quotes from several institutions. These prices would tend toward a consensus, making buyers more confident that the rates they are offered are close to the rates the banks charge each other. A site offering such easy comparisons should draw corporations to it.

Additionally, an automated site could process more trades: multiple, parallel trades from existing corporate customers, as well as new business from customers previously considered too small to merit a relationship with a trader.

Many of the new ForEx trading sites continue to use traders to execute the trades although technology makes the quotation process more efficient. Others, such as New York-based MatchbookFX, eliminate traders in the same way that ECNs automatically match purchase and sale orders. (Technically, the institution is the licensed trader, but there are no individuals on the trading floor.)

The first of the Internet-based currency trading services discussed here was launched last December.

The sites fall into five categories (see table page 22). Two of them are designed to allow corporations to trade only with participating banks with which they have existing relationships. They include trading sites owned by individual banks, such as Chase Manhattan's ChaseFX and trading sites owned by several banks, such as FXall. Another variation, giving corporations license to trade with whomever, is the independently owned multi-bank site, such as Currenex.com. There are also non-bank trading sites, either owned by ForEx trading firms, as is GainCapital.com, or by technology firms providing a trading infrastructure, as does MatchbookFX.

A similar site, CFOWeb.com, which counts ForEx as one of many functions, was discussed in BTN's June issue: "Portal Offers Help For Weary CFOs." Palo Alto, CA-based CFOWeb was announced last fall, but was still only rolling out its service six months ago. Its participating banks include Bank of America Corp. and ABN Amro Corp.

Commentators say, however, that no site seen so far will have the scale or institutional backing of either FXall or Atriax. Bank of America is one of the 13 banks behind FXall, as is HSBC Inc., J.P. Morgan and Co., and Goldman Sachs Inc.

ForEx sites sponsored by individual banks are an extension of the traditional commercial bank-institutional client trading relationships, which account for the lion's share of ForEx transactions. ChaseFX, launched last May in Europe and the United States, is geared mainly towards active traders such as portfolio managers who often execute complex trading strategies spread over a multitude of accounts. ChaseFX mirrors the traditional trading protocol in that clients must work through a trader.

Bob Flicker, managing director of Chase's global trading division, sees ChaseFX as being beneficial to both the bank and its clients. "Online trading allows Chase to realize operational efficiencies of straight-through processing (STP) between the trading desk and trade settlement areas. Additionally, there is less chance of a trade inadvertently being duplicated or misrouted to the wrong account, which eliminates the cost and time associated with correcting such occurrences," he says.

"A client looking to execute a strategy involving multiple currency pairs and spread over a multitude of accounts is able to upload all of the trade details in spreadsheet format through the client interface on ChaseFX", he adds. "This allows clients the flexibility to execute multiple trades in a timely manner, thus garnering a tighter pricing spread across their trades."

As of early October, no multi-bank ForEx sites were live, yet Flicker and others see them as the wave of the future. "While there will always be a need for the one-to-one relationships represented by point- to-point systems, multi-bank systems will streamline the trading process by allowing institutional clients to access a multitude of dealers through a single point of entry."

The scheduled debut of one such service, FXall , is imminent. FXall will allow clients to simultaneously request prices from any participating bank with which they have a relationship. This will allow corporate treasurers to quickly see the competitive rates offered by the various banks and select the best deal without having to call around to multiple trading desks. That will be especially important during periods of market turbulence, when making a profit or loss depends heavily on the speed of trade execution.

Philip Weisberg, interim chief executive of FXall, contends that this heavy-hitters' collective will dominate. "The liquidity and market leadership that will be provided by FXall's member banks will provide clients with greater price transparency, tighter pricing and quicker order execution than is currently available offline or through sites sponsored by individual banks."

At this point, the only apparent rival to FXall is the rumored Atriax, a Chase-Citi-Deutsche online consortium, facilitated by Reuters' technology.

However, Larry Tabb, a group director at TowerGroup and recognized securities' guru, suggests that FXall and Atriax are just the tip of the iceberg. He adds, "At this stage clients are being overwhelmed with the number of choices they are being offered for online trading, which is driving demand for the creation of centralized distribution outlets."

Yet, the Needham, MA-based analyst foresees a possible corporate personality clash within multi-bank ForEx consortia. "It may prove difficult for these successful institutions to agree on a common vision and work towards a common goal," Tabb says. "This would require the member banks to give the goals and values of the consortium precedence over their own corporate goals and values."

Currenex of Redwood City, CA, is not owned by its 25 participating banks. Launched in April, Currenex allows clients to simultaneously request pricing from any of the 25.

Currenex offers corporate customers freedom to pick their trading counterparts and a high degree of privacy regarding their trading data. "Being independently owned allows us to serve the needs of our clients, whether it be facilitating a new trading relationship with one of our member banks or bringing an outside trading partner of theirs into Currenex," says Mark Pey, vice president of strategic relationships.

Another form of ForEx portal for the middle market is sponsored by independent market makers, such as Gain Capital, which handles trades valued at between $100,000 and $10 million. Gain both buys and sells, allowing it to publish real-time, bid/ask quotes and to execute orders almost instantaneously. This leads to price transparency and spreads that are often five basis points less than elsewhere.

As a market maker, Gain makes its money from trading, not commission, so it charges no transaction fees. (Banks, by contrast, typically charge corporations to retain them as ForEx clients, in addition to the bank making money on the difference between what it pays for and charges for any given currency.) According to Glenn Stevens, head of trading and sales at Gain, "Increased trading on both sides of the market affords us a greater opportunity to make money, which allows us to offer clients a low cost, transparent market to trade in."

MatchbookFX, the New York network, also caters to the smaller end of the market. MatchbookFX requires a minimum deal size of only $100,000. It trades only in the currencies that are the staple of foreign exchange: the U.S. dollar in exchange for the Swiss franc, yen, euro, or sterling pound. Matchbook's clients are mostly the treasurers of smaller corporations and currency traders at smaller financial institutions.

Matchbook differs markedly from the bank services by allowing corporations to bypass traders. On MatchbookFX a client prices a trade, enters it into the system, and denotes that he is either a price taker or a price maker. MatchbookFX then anonymously matches up the best bids and offers against all trade requests within the system. The fact that there are no minimum bid/ask spreads or third-party involvement allows clients to receive transparent pricing while remaining anonymous.

"By virtue of MatchbookFX not having a stake in the trades that are arranged on the service, we are providing a safer and more efficient environment within which smaller institutions may trade currencies online," says Mark Smith, president and chief operating officer.

TowerGroup's Tabb expects such firms to succeed, in part because they are catering to those who have been overlooked: small institutions and individual investors. Services focused on small customers are not only providing access to the capital markets, but competitive pricing, he says. These factors combined with the move towards international equity investing-which will require currency hedging-bode well for the low-end ForEx portals.

Foreign currency trading is making its way onto the Internet. Whether banks and traditional players retain control of the market in a new arena-as they initially failed to do with equities-remains to be seen.

Tom Condon is a freelance writer in Nanuet, NY. Orla O'Sullivan also contributed to this article.

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