Perhaps like many, my first reaction when I heard that David Ogg had left his role as head of Lava FX, was to add two and two together and conclude that Citi was about to pull the plug on its subsidiary and trigger the long-awaited consolidation in the platform space. However, it seems that perhaps I should have paid a bit more attention in my maths lessons all those years ago, because this time I got the sum wrong.
The word coming out is that Lava is seeing decent volume on its ECN and newer interbank platform, which went live in December. I rang around the Euromoney top 10, and it seems that six of them have hooked up. A couple declined to confirm one way or the other, and one said that it was looking at it, but it was a case of prioritising IT efforts. On balance, the feedback edged towards the positive. “It is actually pretty good – the volumes are very decent and we find it a good liquidity source,” was one. However, one major player described Lava as still being weak, while another said he had not noticed any increase in flow.
Apparently, 50% of Lava’s volume is now coming off the interbank platform. Cynically, I was going to suggest that this is because the volumes on the ECN are so low that doubling them is probably the capture of a single decent trade. But I’m reliably told this is not the case and that volumes are running at the sort of level that have been touted as a breakeven figure by FXMarketSpace (FXMS) – in other words getting close to $20 billion a day.
Last year, before the interbank platform had gone live, Lava was out touting the system to potential clients. The problem it faced in getting people to connect was an old one. Should it flash its knickers on its first date? In effect, this is what FXMS has done, which was a bold move but which looks to have failed. Despite its latest initiative, there’s not a lot of ‘ball jumping’ taking place on that system.
Other platforms, Lava included, decided that if you want a relationship, you have to retain a bit of mystery. It’s a tough balancing act – after all, connecting takes time, effort and resources. But the support of the big boys, who clearly want and need an outlet for their external flow, seems to be working. Lava is now considering external requests to invest in it. From what I can remember, the same sort of thing happened back in the early 1990s? So are we witnessing the birth of a new EBS? Only time will tell.
