Q: You’re expecting to go live with your dealing system in June across 50 countries. The other bank-owned FX portal seen as your major competitor – FXall -also plans to launch around this time. What projections do you have for uptake of these electronic systems?
A: Over the next three years we’ve predicted that over a third of bank clients will be trading through some electronic means, and obviously the biggest portal will have a large share of that. That’s up from about 5% of bank clients at the moment. It could grow a bit quicker than that – the response we’re seeing is making us wonder if last summer’s guess about uptake was a bit low.
Q: What is happening now in terms of testing of Atriax's system and getting members ready?
A: Right now the dealing is happening between the advisory board and the bank board. A subset of the system was in place in January and we’ve technically tested it for three months and decided that more of a process release was useful just to see how many people it takes to support training, people forgetting passwords, and things that are hard to extrapolate when you go to very large numbers. The point is more to do with the human side rather than the technical. It’s helping us figure out how quickly we can get the hundreds of institutions that want to trade onto the system.
Q: How about the process of integrating Atriax into the banks’ own dealing systems?
A: We released two APIs a couple of months ago. A C++ and a Java one. They’re very public and it’s probably a bit different to other portals that try to keep much more control on how to access the portal. Now we’re integrating the bank and advisory board into the June release and doing that in ever wider circles for the institutions we’re serving.
Q: Before their merger, Chase was a major stakeholder in Atriax while JPMorgan was initially part of FXall. I know you can’t really speak on their behalf, but what do you suspect made the merged entity – JPMorgan – switch completely to Atriax?
A: Quite a number of major banks have put all of their resources behind Atriax. Every bank needs some e-commerce solution and most have joined Atriax and some have also joined several other portals. There are two costs to joining a portal. One is the finite technology resources to do the integration and the other one is the brand. Some banks view that participating in every portal doesn’t cost anything to their brand, and maybe enhances it. While other banks believe the opposite, you should participate in the leading solution and put your full weight behind it. JPMorgan is the latter.
Q: With the banks that have joined more than one FX trading initiative – for example 17 banks joined FXall in January that were already members of Atriax – how do they integrate their own in-house dealing systems with both? And what about splitting liquidity support?
A: Obviously if you had infinite resources you could connect to both systems. Our system is fairly straightforward to connect to but it requires a couple of people to project manage all the issues. We’ve published an API, which I doubt our competitors have done, and it’s straightforward to connect.
The bigger question is the liquidity and resources – training your sales force to respond to quotes etc. That’s been the issue in some of the portals that are already operating. Often there’s no-one on the other end of the computer to answer the request for a quote. You physically have to have staff there, so obviously you can work with a couple of different systems, but only a few.
Q: What are the essential differences in business model and trading functionality between yourself FXall, and the other non-bank owned portals?
A: A couple of philosophical differences mainly, and then also the major point of liquidity. In any marketplace this is a prerequisite for success, though it doesn’t guarantee it. About two thirds of FX market share is represented in Atriax. In every market, we have the best and strongest banks.
On the philosophical differences, we never impose any exclusivity clauses or prohibitions on who may use the system or how. Other portals have tried these means, but we feel that for an industry standard to develop, you need to keep it open; you need to publish an API, you need to tell everyone how to connect to it. You have to let anyone be a member of your system and allow them to join others.
Also, once you are a member you’re free to use it any way you want. Any two members of mutual credit are free to trade. FXall is structured such that it’s only one bank and one non-bank in every trade. From what I know, they’ve also set many other rules on how you can trade – you can only ask three banks for quotes, for example.
In FX currently, the markets work very well because they’re largely self-regulated. Participants themselves figure out which protocols they should use and how the market evolves. We’re setting up a flexible open system for people to see which dealing protocols are better. That way you’ll get dealers who still want to use it.
Most portals have tried to set a new model on how to deal and very few are successful right now and part of it is they’ve either favoured the buy side or sell side to too great an extent. FXall only allows you to ask for quotes from three banks and you must tell them if they’re in competition or not. That’s not the way the telephone works. With Atriax you can use the system the way you do over the phone – we’re neither favouring the buy side or the sell side.
Q: Other than great price, execution speed is a concern for market participants. How does the reverse auction model you use affect speed?
A. Reverse auction means you ask for a quote. Currenex and FXall also work on this method. But with Currenex’s principle business model it used to be the quote doesn’t come back for 25 seconds for some reason.
Sub-second is the goal obviously. Atriax will definitely have sub-second pricing from those of our member banks that have autopricing.
We’ve set up a private network and we’ll have independent redundant data centres in the UK and US, which is different from our competitors. We also have private network connectivity to most of the major players so I can’t imagine anyone being faster, although some of our competitors may be able to match us.
It’s a surprise with e-commerce – the speed of quote really is so powerful in determining who gets the deal. In bond portals it’s the most obvious lesson. The first two or three banks have a much higher chance of dealing even if the price is not ultimately what would have been the best price. And I think FX will be that way especially because the prices are so tight anyway.
That will favour banks that do have autopricing engines. The banks that have invested in this technology haven’t really gotten reasonable rewards yet because most of the time it's still a dealer picking up the phone, screaming over the desk, and so on. With the new online systems, most banks will probably invest in autopricing in the next six months.
Q: Users of Atriax need to have an established credit line with each bank, so will the banks be mainly targeting their own customers to shift to the online platform?
A: For the most part, that’s going to be the case. Existing customers will be the users initially. The only change I think this will enable in the market is it will be easier to market to new customers. One very powerful way is for a bank to freely publish some subset of their research – maybe 20% – that is open for any professional to read. That will help open up access to customers that you never had access to before because physically getting addresses and mailing research would be expensive and inefficient. It will open some more eyeballs.
These people will then be able to do the whole documentation process in a more automated way via Atriax. You can have standard settlement instructions, standard documentation and so on. Opening additional accounts will also be easier. On the balance I think it will favour more specialist banks than we currently have. If you’re, say, a fantastic Asian regional market maker, this will enable you to find corporates, for example, in Germany or the US that you haven’t been able to access before.
Q: How important do you think established personal relationships and ‘trading ideas’ phone calls are going to be as an inhibiting factor in the uptake of trading online?
A: All that service provided by the relationship is hugely important and is the reason why most counterparties deal with each other. I think that will stay exactly the same. In effect, this new system will replace the telephone just for the trade itself. The rest of the relationship, strategic planning and other resources banks provide their clients will stay the same.
I think there will be quite a number of trades that are done over the phone and are entered into Atriax. Say you have a $300 million deal to do and you want to spend half an hour talking to the person you trust on the phone – you’ll probably finalize the deal that way. But then it will be entered into Atriax, flow through to the back office because it’s easier to process that way.
Q: So it’s possible to deal with just one selected bank rather than input a general request for quote?
A: We have a feature where, after you’ve agreed to a trade you can enter it into the system and the bank then confirms ‘yes, that’s the trade we just did’, and that’s it. I think there’ll be a lot of that, especially once people start using this and realize it saves all the hassle of filling tickets out, re-entering into systems and so on. You can also put out a request for quote to just one bank.
Q: Atriax has said it plans to introduce new asset classes into the trading infrastructure. What classes and timeframe do you have in mind?
A: Last summer we did a review of all the technology that existed. The two things we were looking for were a system that was engineered from the beginning to be a multi-asset class system and also to be multi-bank. There really aren’t many in the market. The system we got from Integral Development Corporation is the only one that we found that fit the requirements.
This gives us the flexibility to move into other asset classes. We’ll move into money market and other similar asset classes to foreign exchange this year. And then besides that, we might, in future, look at entering other markets like swaps or bonds, perhaps through a merger, or maybe through in-house development because we have the technology to do that.
Q: What are the most common questions or comments you’re getting from market participants in the lead up to the full launch of trading?
A: It’s more of a comment, but the buy side doesn’t want a portal for better pricing or transparency or any of those issues. The FX markets are already by far the most efficient in the world and it’s really the processing. That’s all the buy side wants to talk about – how does it connect to my system? Can I really go home 20 minutes earlier because I don’t have to write all these tickets out and type them all in? That’s where the excitement about this is for the buy side.
