Fifty of the world's leading banks have launched an Internet-based marketplace for foreign exchange trading. Called Atriax, the market is intendedto provide the most liquid, efficient and open portal for online FX dealing for corporate, institutional and banking professionals.
Led by Chase Manhattan, Citibank and Deutsche Bank-which put up of the lion's share of the capital-the banks account for half of all global FX dealing. Trading volume in this market is about $1.5 trillion daily, making it the largest, most liquid market in the world.
"The most significant criterion in an exchange is liquidity. From a liquidity perspective, this has a clear lead and we hope to have our technology platform out there quickly," said Dan Morehead, CEO of London-based Atriax.
The Atriax platform will provide a single point of access to market news and data, aggregated research, online dealing and straight-through processing. Other financial markets like stocks, bonds and commodities have moved or are in the process of moving toward electronic networks to route orders, execute, clear and settle trades, review positions, manage risk and distribute research.
The market is being rolled out in stages. Members may now access a combination of real-time market data and news supplied by Reuters and aggregated research from bank members, indexed to facilitate easy access. "FX professionals will come onto this site and be able to get all of the news and information they need to be able to make a decision about an FX trade," Morehead said.
Beginning in the second quarter of 2001, Atriax will offer online dealing, with members being able to subscribe to Reuters' real-time prices and online request for quote services, replacing the traditional phone call.
The platform will also deliver an automated confirmation and settlement process, allowing members to increase efficiency and cut costs associated with transactional business, and freeing them to concentrate on building relationships and managing the more complex deals. "Our aim is to quickly establish Atriax as the most efficient means to research, transact and settle FX business," said Morehead.
A 14-member Bank Board will represent the interests of sell-side members, helping to define trading protocols and the electronic interfaces to member systems. An Advisory Board, composed of 24 global corporations and institutions active in the FX market, will represent the interests of buy-side members.
Atriax will provide buy-side members with better transparency and improved liquidity in a one-stop environment, according to James Bunt, vice president and treasurer of General Electric. Noting that member banks already transact more than 50% of GE's volume and provide more than 50% of total market liquidity, Bunt said that GE plans to execute the majority of its FX volume via Atriax.
Radianz, a Reuters spin-off that specializes in building e-commerce networks for high-value transactions, will provide the IP-based networking for Atriax, as well as act as a gateway to Reuters financial content. The Radianz network boasts 520,000 users and 60,000 connections in banks and securities firms in 120 countries. The company is converting those connections to an open IP network that's highly secure and "content aware."
New York-based Radianz will provide managed directory services, advanced messaging services, and enhanced security. In addition, it will provide dynamic content routing and distribution, enabling Atriax members to communicate and build new applications quickly and efficiently. Other major technology vendors are Integral Development Corp. (request for quote engine) and TIBCO (market data connectivity).
Morehead said that Atriax will help mitigate Herstatt risk, a type of risk that's peculiar to FX transactions. Herstatt risk occurs when the parties to a FX trade are in different time zones. For example, in a trade involving U.S. dollars and Japanese yen, the yen is paid through the Japanese payment system during the banking day in Tokyo. Some hours later, when banks are open in New York, the dollar leg is paid. The risk is that the bank in New York could become insolvent and default on its payment after the bank in Tokyo has already made its payment.
Atriax is just one solution devised by the banking industry to contain Herstatt risk. Another is CLS Bank, a high-tech, straight-through processing clearing and settlement system that's owned by many of the banks that are backing Atriax. Based in New York, CLS Bank holds settlement accounts with central banks for each of the world's major currencies. Settlement members pay CLS Bank through the local real-time gross settlement systems, and CLS Bank pays out settlement proceeds through these same systems.