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E pluribus unum

With foreign exchange platforms popping up all over the internet, competition and consolidation are sure to separate the winners from the losers. But will the web’s power to disintermediate ever allow corporate users of forex services to trade currencies directly with each other? Rick Butler reports

With a daily trading volume average of $1.5 trillion, foreign exchange is certainly the world's largest market and arguably its most liquid. And like equity and bond markets before it, foreign exchange is finally getting wired.

The arrival of a handful of platforms and portals - both from banks and from pure dot com service providers - is bringing a new element of price transparency to an already relatively efficient market. Yet unlike in other areas of financial services - where the internet has enabled customers to participate more directly in markets and source new and more competitively priced services - the web, for now at least, is doing little to alter the foreign exchange value proposition.

As providers of liquidity and the bearers of risk, foreign exchange banks remain squarely entrenched between their corporate and institutional clients and the currency markets. And most forex bankers feel that this is where they will remain.

"There are a lot of operational issues that limit the feasibility of corporates transacting directly among themselves," says Peter Gerhard, the New York-based global head of forex at Goldman Sachs. "Taking on credit risk starts to get into the banking area, and companies don't want to trade at bank multiples, which are generally 30-50% lower than at other companies.

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