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“The banks are certainly paying tens of millions a year [in systems development]. This can be justified by making the platforms multi-asset. The pendulum is moving back towards the banks” Robert Iati, TABB |
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After examining where both buy-side and sell-side dealers are trading, Iati says that this has resulted in the market fragmenting again, after what looked like a period when it would consolidate.
“We’re seeing a shift in the curve. In the late 1990s, there was a move of business away from the banks as the banks supported aggregators such as FXall, Atriax and Currenex. That worked but within a couple of years the banks realized that they wanted stickiness and they started to put money into developing their own [trading] websites. To an extent, that has impacted the growth of the aggregator sites,” says Iati.
He adds: “Around the millennium, everyone was predicting that 50% of the volume would be done on the aggregator platforms.” As Iati points out, that has not happened and now he wonders about the long-term viability of the aggregators.
His views are supported by a senior figure at a major FX player. “Well, for now we still support them [the aggregators]. The question is, if we allow people to trade for free directly and they can build their own aggregators, what is the point of paying a service to aggregate for you? I think [they have] limited life span.”
Looking ahead, Iati says it might be that the growing demand for cross-asset trading functionality might help newer entrants, such as Lava, that have developed successful offerings elsewhere. But while the banks could struggle to grab the buy side’s attention if they remain just FX-focused, Iati points out there is nothing to stop them from developing multi-asset offerings. The benefit of this is that it also increases the efficiency of their IT spend.
“The banks are certainly paying tens of millions of dollars a year [in system development]. This can be justified by making the platforms multi-asset. The pendulum is currently moving back towards the banks,” he concludes.
