Banks takes on multi-dealer platforms with FXSpotStream
A consortium of leading FX banks has launched a new trading venue aimed at attracting customer business away from brokerage-charging platforms, such as FXall, FX Connect and 360T.
FXSpotStream, which is streaming spot FX prices from its hosting site in New York through an API, does not charge brokerage fees to clients or liquidity-providing banks, and plans to go live in Europe early next month and then in Asia in the third quarter. Liquidity providers on FXSpotStream’s API include six of the top 15 banks from this year’s Euromoney FX Survey: Bank of America Merrill Lynch; Citi; Commerzbank; Goldman Sachs; HSBC; and JPMorgan.
FXSpotStream is a wholly owned subsidiary of LiquidityMatch, in which most of the liquidity-providing banks are shareholders.
People familiar with the matter tell EuromoneyFXNews that the move from the banks to create a new marketplace makes sense, since trading technology that can stream live prices in multi-dealer format is readily accessible to anyone. Therefore, it will enable them to bypass the traditional multi-dealer platforms (MDPs) and avoid paying brokerage fees when dealing with their own clients.
As one global head of FX who is involved in the venture puts it: “Why are we paying some of the vendors for technology that, quite honestly, we can do ourselves. Once upon a time that wasn’t the case.”
Other liquidity-providing banks also welcomed the co-operative effort.
“Any solution that allows us to reduce transaction costs for clients and liquidity-providing banks is a welcome addition to the market place,” says Richard Anthony, global head of FX eRisk, GFX at HSBC.
The banks believe the new system also makes sense for a lot of customers since it will reduce their technology costs as well, because it allows them to have one fixed API rather than multiple adaptors to access liquidity from the banks.
Alan Schwarz, CEO of FXSpotstream and who spent 10 years up to 2011 at Icap in North America, describes FX Spotstream as a utility, emphasizing it is not regarded as a profit centre.
“FXSpotStream provides banks and clients the ability to communicate bilaterally using a solution that does not interfere with the transaction, is transparent and eliminates the cost of execution,” he says.
However, some market participants remain sceptical about the success of such a business model, given evidence in recent years of similar failed consortiums.
For example, in 2007, a group of 16 fixed-income dealer banks, including Citi, Deutsche Bank, Goldman and UBS, launched LiquidityHub, a similar not-for-profit pricing aggregator for interest-rate swaps and government bonds. Its prices, too, could be executed on multiple platforms. The project was short lived, closing after five months of operation in March 2008.
In the FX market itself, FXMarketSpace, the world’s first centrally cleared global FX platform, which launched in March 2007, closed for business in October 2008 after it failed to attract sufficient liquidity. It had been 50-50 venture between CME Group and Thomson Reuters.
“The statistics on the failure rates of these things are very high,” says a former executive of a bank-backed trading-platform consortium. “Unless everybody has a single united mission, has a viable model and one criteria for success, then chances of success are low.”
Naturally, the incumbent MDPs argue that FXSpotStream is an incomplete offering.
The CEO of one MDP tells EuromoneyFXNews: ”For you to be a client of [FXSpotStream], you need no work flow, no pre-or-post trade service, you have to be spot only and you have to do 100% of your business with those few banks. These things work when you only have everybody.”
Indeed, many existing MDPs have developed connectivity where they have the ability to plug in streaming liquidity from as many as 20 FX market makers on demand.
The platform’s introduction over the summer will be watched with much interest, as it hopes to attract more market makers. It will also be hoping that a slowdown in market volumes will work in its favour too. With an ever greater focus on the cost of doing business, they will hope this gives FXSpotStream a positive start.