FX Connect is working with technology provider SunGard to break
into corporate forex. This will increase competition among the
three existing multibank forex portals, posing a threat to Currenex
and FXall.
FX Connect, owned by State Street, says it recognized some time
ago the need to move into corporate forex. "It's a bit of a
departure for us, but we always believed we would have to find a
way into the corporate market," says Steve Smit, managing director
of Global Link, State Street's cross-product platform, of which FX
Connect is a part. "If you look at the [foreign exchange] market,
there are tens of thousands of corporations that play a significant
role."
Until now FX Connect has focused on serving institutional
investors. By making its portal available on SunGard's treasury
management system it has access to a potential 1,400 new corporate
clients, more than 500 of which are in the Fortune 1000. This could
increase FX Connect's transaction volume and online market share
significantly.
SunGard says it chose FX Connect over the other portals for
several reasons - not least the volume of forex flow it is
transacting. Executed trades regularly reach $10 billion a day
(counting only one side of the trade and one leg of swap deals).
But only 10% of FX Connect's transaction flow, about $1 billion a
day, stems from quotes requested in competition, which is typically
the purpose of multibank portals. If SunGard clients follow this
pattern and use FX Connect to access various banks' prices on a
singular, not multibank, basis, the deal between FX Connect and
SunGard will pose little direct threat to the flows on Currenex and
FXall.
"Our clients have different needs that require both single and
multibank portals," says Graham Taylor, executive manager of
Sungard's eTreasury Exchange (eTX). "But what they are really
interested in is access to prices from their banks. They're not so
worried about the delivery channel. FX Connect provides access to
[a number of] the world's top global FX banks from the single-bank
perspective, which clients can also access in aggregate if they
choose."
State Street is confident that FX Connect can compete equally
for forex market share among corporates, but to do that on the
multibank front will require auto pricing. State Street is building
an API (application programming interface) so that banks can
connect their auto-pricing engines, but at present no bank can
quote automatically on FX Connect. Smit says: "We expect to see a
significant increase in transaction volumes given the size and
nature of SunGard's installation base, and we expect to see an
increase in competitive pricing on the platform, which is well
embedded in the corporate treasurer's psyche."
From Currenex and FXall's point of view, FX Connect's deal with
SunGard is but one connection between a portal and a vendor of
treasury management systems. FXall, which recently had a record day
for volume with $5 billion and which regularly sees more than $4
billion a day, says it has 35 such agreements in place. Currenex
has not released volume figures, though it also says it has full
integration with a dozen TMS vendors. And while SunGard says it has
never written software to connect its treasury system to FXall,
some large corporate clients of SunGard have written software
themselves, which means that FXall has already tapped into some of
SunGard's corporate clients.
Any effects that FX Connect's deal with SunGard might have on
e-forex - many still believe that only two portals can survive -
are unlikely to show before the second quarter of next year. The
link between SunGard and FX Connect is currently only available on
SunGard's eTX network.