I do try to be impartial, I really do. But sometimes I feel that my life is sometimes made unnecessarily difficult. Most frequently, this is as a result of my own behaviour and readiness to jump to conclusions. Anyway, for some reason I have become a little bit obsessed by FXMarketSpace (FXMS), the fledgling 50/50 joint venture owned by the CME and Reuters. I say for some reason because it seems my obsession is not shared by my readers. Up until now, the vast majority of the people I talk to in the market have been completely underwhelmed by the platform.
However, as Mark Robson, FXMS’s chief executive, rightly pointed out to me, I don’t talk to everyone, particularly those down in the market segment that the platform is targeting. Anyway, since the release of FXMS’s first set of volume figures at the start of May, I have been keeping a watch on its turnover, as reported on Reuters, and I did notice that most days these seemed to be hovering around the $500 million a day market. FXMS has confirmed now that its daily average turnover in June was $509 million, which does not look particularly impressive at first glance, but which is a very healthy 54% increase on May.
Now, assuming that this growth remains constant, FXMarketSpace will reach its breakeven target of $16 billion a day in 23 months. This is slightly later than the 2008 date slated by the company’s two parents but not by enough to cause any real concern. And in any case, as everyone always says, frequently, liquidity attracts liquidity and there will be a tipping point when the rate of growth will started to accelerate.
Yesterday, the platform transacted over 2 yards of dollars. The initial pick-up in volume, which started around a week ago, seemed to stem from activity in EUR/JPY. FXMS has confirmed that someone is supporting the cross and to me this looks like having a knock-on effect in its EUR/USD and USD/JPY volumes.
Now I’ve been called many things in my time. One of the more polite is cynic. It’s a trait many of my readers share with me. I mentioned to an old mucker, who is head of FX at what could be termed a regional bank, that FXMS suddenly seemed to be doing quite well in EUR/JPY. “It’s the cheapest way of pumping up the volume. It’s probably some local bucket shop doing the arb between EUR/USD, USD/YEN and EUR/JPY,” was his, even by my standards, very cynical response. “It costs a few bucks a million, because of the spread, but it makes it look like the volume is picking up. It’s an old trick. Exchanges always find a way to inflate their volumes, especially when products are new. Just remember what happened with the men in black in Paris,” he added.
I had to rack my brains about that one, but then I remembered. The old Matif, now part of the Euronext-Liffe-NYSE conglomerate of exchanges, launched a European bond contract in late 1999, the Notionel, which was supposedly better suited to the market’s needs than the dominant Bund listed on Eurex. To help get it off the ground, a group of market makers, the Matif Intervention Bancaire, or men in black as they became known, set up shop in a house in Parisian suburb, where they crossed up business between themselves all day long. Reported volumes surged, but it was all an illusion. When they pulled their support in late 2001, the contract died a rapid death.
I asked FXMS if I could have a breakdown of its daily and intraday activity, but so far it has declined to help me out. My mucker feels it’s strange that FXMS is not seeing good business in the currency pairs you might think it should. He reckons FXMS’s cable spread, which is consistently two pips, is as good as anywhere else, but it has not been attracting any punters, although that too could be changing. In contrast EUR/JPY is, even though the spread is nothing special.
Anyway, moving on, FXMS has, according to Reuters, opened an office in Tokyo. The timing appears fantastic, given the sudden pick-up in EUR/JPY and USD/JPY on the platform. I didn’t get sent the news directly – FXMS decided to issue it as exclusive to a Japanese agency, which Reuters picked up.
It seems Michael McCorkle is joining the company from Reuters to head North Asia sales. In a previous role, Mike was managing director for Asia at ICor, the options platform Reuters rebranded last year. This has struggled for years, despite the widespread predictions of a greater uptake in electronic option dealing, but Reuters has remained committed to it. His experience will no doubt prove invaluable.
