Online FX Market Gets A Reality Check

The demise of Atriax, an online foreign exchange trading portal that shut its doors in April, is associated with a number of factors, say competitors and independent observers. Some are related to Atriax in particular and others to the online FX concept as a whole.

To some, Atriax was just another dot-com solution in search of a problem. "What it comes down to is not owning the online marketplace, but having sound relationships with customers," said Simon Wilson-Taylor, managing director at State Street Bank and head of its Global Link network, which features a multi-bank FX portal called FX Connect.

While Atriax's raison d'etre was to speed up low-dollar FX trades, most of the $1.2 trillion in daily FX turnover involves large bank-to-bank transactions facilitated by EBS and Reuters.

"The reality is there's a relatively limited revenue opportunity for online FX," said Wilson-Taylor. "It's tens, or possibly hundreds of millions in revenue from buy-side clients which is being fought over very aggressively. That's the space that Atriax, Currenex and FXall were all fighting over."

Others, however, view the fall of Atriax as a failure of tactics. "They had some difficulty in delivering a fully-functional product," said Bob Iati, an analyst at TowerGroup. "That hurt not just its usability, but its credibility."

Other marketplaces, including Currenex, FXall and the European entrant Centradia, expect to capture share in a growing market, fueled by an increase in the buy-side share of total FX volume, said Philip Weisberg, CEO of FXall, a New York-based multi-bank portal.

Consolidation in the financial services industry is reducing the amount of capital committed to interbank trading, Weisberg said. At the same time, some banks essentially act as buy-side clients themselves. "A number of smaller banks have found FXall to be a more cost-effective solution than EBS and Reuters," he said.

Global levels of trade and investment are driving up buy-side FX volume. "The space is very healthy," said Weisberg. "You have to be bullish on prospects for the industry."

In any event, major banks must accommodate their buy-side customers, including money managers and multinational corporations. Hence, banks are forging links with more than one exchange.

One of Atriax's former backers, J.P. Morgan Chase, announced relationships with both FXall and FX Connect. "Many of our key clients have chosen FX Connect, particularly for its straight-through processing benefits," according to David Puth, managing director and head of North American FX Trading at J.P. Morgan Chase.

FXall, meanwhile, is scrambling to pick up Atriax's backers, including J.P. Morgan Chase, Citibank and Deutsche Bank, all of which will provide liquidity through its portal. FXall has liquidity agreements with over 55 banks, of which 30 are connected to the platform.