A new online forex trading venture is promising to create a fierce battleground for electronic forex trading. FXall.com, due to launch at the end of this year, has already attracted sizeable investment from heavyweights Bank of America, Credit Suisse First Boston, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley Dean Witter and UBS Warburg.
The new service aims to offer multinational corporations, institutional investors, and other wholesale users of foreign exchange products and services, 24-hour access to the global forex market - the world's largest financial market - via the internet. It hopes to capture a large part of the $1.4 trillion in transactions that take place daily in the global market. .
Online forex trading platforms are not new, however. Large players such as Standard Chartered, and SG û the investment banking arm of the SociTtT GTnTrale Group û have already launched their own browser-based online dealing system.
But here's the difference: whereas existing systems allowed clients to view prices and trade with only one bank, FXall.com's platform allows them to access multiple banks. It was these restrictions that inhibited the mass uptake of single bank platforms in the past. The services on the platform will include one-stop liquidity in forex spot, forwards and options, forex research and forecasts from participating firms, and straight-through processing. While clients will be be able to view all prices and research on offer, dealers will not have access to their competitor's quotes or research.
FXall.com will charge a usage fee (which is yet to be disclosed) but the company anticipates that savings realized by reduced spreads and processing costs will offset any usage fees that may be charged.
A marriage of convenience
Girish Kumar, bank analyst at Merrill Lynch, says finding the right partners will be the key to FXall.com's success. "If the site is launched single-handedly, unless the bank or financial institution controls more than about 75% of the market, they would not do as well as a multiple bank platform," he says. "The right model is for the banks to join hands. In order to bring critical mass, you need to work with competition."
Amit Rajpal, vice-president of banking research at Morgan Stanley in Hong Kong, says that if a venture has strong sponsors, it will attract large volumes, and in turn attract the necessary customer base. He believes that FXall.com will provide a "credible threat" to existing systems, such as Reuters.
Analysts also contend that Fxall.com could mean narrower spreads. Paul Kimball, the FXall.com chairman and co-head of foreign exchange at Morgan Stanley Dean Witter, says that the venture will not only mean that forex transactions will be faster and cheaper, but will also result in a more liquid and transparent market. But Kumar at Merrill Lynch thinks the impetus might be somewhat different. "I think that the driver is market efficiency, not so much cost efficiency."
Analysts also say that it is only a matter of time before other large banks combine forces to offer a rival product, to ensure FXall.com does not become the market maker. But FXall.com's Kimball says that the door is still open for further investments by other financial institutions to take advantage of FXall.com's first mover advantage. Participation is also open to all forex dealers. But whether the other heavy hitters come to play is another story. Standby for a ferocious battle.