A Platform War Erupts in the Foreign Exchange Market

Traditionally, when traders at AXA Investment Managers, the London-based arm of the big French insurance company, wanted to buy or sell currencies, they picked up the phone and called the firm’s bank, JPMorgan Chase & Co. Then in 2007, AXA’s traders began using an electronic currency-trading platform, FXall, for many of their transactions. But with new technology multiplying the number of potential trading venues, AXA is now undergoing another shift. It is in the process of moving most of its currency business to a new platform, called TradingScreen, a step it hopes will enhance and simplify its trading activities, says Lee Sanders, the firm’s London head of FX and money market operations.

“We want one screen with all the capabilities,” says Sanders, whose firm trades about $300 million a year in currencies. Among other bells and whistles, TradingScreen attracted AXA with its extensive range of algorithmic trading, flexibility in enabling users to set their own risk parameters and transaction cost analysis tools to help AXA ensure it is getting the best currency deals. TradingScreen “is bringing more ingenuity and enhancements to the market than FXall,” Sanders says. “We want to stay ahead of the curve.”

A platform war is intensifying in the global foreign exchange market, with more than half a dozen entrants jumping into the space in the past few months. It’s still too early to know which platforms will emerge as winners, but the proliferation of venues is already sparking declines in already-low trading costs, with banks earning less on each trade, in a situation similar to what’s happened in equity markets over the past decade. One banker estimates that revenue per trade has dropped by about 9 percent over the past year through a narrowing of bid-offer spreads.

“This is the beginning of a big change in FX trading,” says Rebecca Healey, a senior analyst with financial consulting firm TABB Group in London. “A revolution in technology is taking place, and this is just the tip of the iceberg.”

Although electronic trading has been part of the FX market for many years, it traditionally focused on interbank trading. Just two players — ICAP’s EBS and Thomson Reuters — dominate that segment today, with a combined market share of roughly 80 percent.

n的崛起ew players has effectively spawned four distinct market segments: the interbank market, which has attracted new entrants, such as Currenex and  traFXpure; a new wave of platforms like FXall, FX Connect and tpSpotdeal, which link end users like AXA with multiple banks; single-bank proprietary platforms such as Deutsche Bank’s Autobahn and Barclays’s BARX FX, which offer a wide range of customized services to clients; and so-called aggregator platforms like TradingScreen and MarketPrizm, which offer end users a variety of possibilities, such as multiple-bank price streaming, single-bank proprietary feeds and even access to other electronic networks.

希利说：“有新的市场参与者加入，有新的交易方式，总而言之，这是一个巨大的增长机会。”。一些老练的交易员现在每个外汇交易台上都有7个屏幕，只是为了跟上最新技术的发展。

Although the proliferation of trading possibilities is shaking up the FX market, the big banks that have long dominated currency trading are seeing their market shares rise. To stay in this increasingly competitive game, banks have to spend hundreds of millions of dollars to acquire the latest technology; only behemoths like Barclays, Deutsche and JPMorgan can afford to make that kind of investment.

“如果你想象像漏斗这样的外汇交易市场，那么新平台的皮疹已经大大加宽了嘴巴，”纽约布朗兄弟哈里曼·诺克斯公司的全球外汇总部。“但狭窄的结束是大多数交易发生的地方，甚至越来越小，五银行继续占据市场。”

One of the drivers of the multibank platforms was the series of federal and state lawsuits filed against two custodial banks, State Street Corp. and Bank of New York Mellon Corp., alleging that they had overcharged for FX transactions. Both have denied the allegations.

在这些诉讼中，争议在于这两家银行是否在外汇交易记录日向客户提供了最具吸引力的价格。美国政府的诉讼指控，纽约梅隆银行使用了当天最差的价格，即使交易发生在对客户有利的时候。

Although the suits have not been resolved, the allegations were disturbing enough to make institutional investors take another look at their currency trading to see if they were getting the most-attractive market prices, or what is known as best execution.

Simultaneously, in Europe institutional investors have been looking to overhaul their trading following the 2007 introduction of the European Union’s Markets in Financial Instruments Directive, which requires institutions to show their clients that they are getting best execution.

资产管理公司伊顿万斯公司（Eaton Vance Corp.）全球交易主管迈克尔•奥布莱恩（Michael O'Brien）表示，他的公司实施了一项最佳执行政策，并利用平台从多家交易商那里获取流动货币报价，从中选择可用的最佳报价。”“电子交易降低了我们的交易成本作为衡量出价，”奥布莱恩说五年前，我们的大部分外汇业务都在打电话。”

Unlike equities, the spot foreign exchange market has never involved an actual exchange. Currencies trade over the counter, and there can be as many prices as there are market makers. The only way an institutional investor or other end user can be sure of getting anything like the best execution price is to compare quotes offered by a large number of banks.

Institutions like AXA and Eaton Vance that formerly relied on just one or two banks for their FX dealings now need to compare quotes from ten or more institutions to satisfy clients that each trade was conducted at the most attractive rate. Coming online nearly every month, new platforms share one feature: the ability to compare quotes. Some involve what is known as request for quotation, or RFQ, in which they basically post a potential trade online and ask banks to bid on it. Alternatively, some services offer so-called streaming quotes, in which the banks put their buy and sell offers for currency pairs, such as dollar-euro or dollar-yen, online.

“我的目标是给为我工作的交易员提供尽可能多的工具，让他们选择最适合任何特定交易的工具，”O'Brien说每个平台通常都提供一些独特的东西，在某些情况下对我们有用。”

例如，一些平台允许他使用计算机算法进行交易，将大宗交易分割成小块。这项技术之所以有用，是因为它掩盖了资产管理人大举买入或卖出一种货币的事实；其他市场参与者更难以资产管理人的利益为代价调整价格和利润。交易员表示，德意志银行的算法功能特别强大。另一种类型的平台，比如EBS，在不透露客户身份的情况下，向20家银行提供报价。

奥布莱恩认为，如今的平台比市场最终能支持的平台还要多，但他表示，这项技术令人印象深刻，值得等待，看看哪些平台会成为赢家。

“It is a very daunting time to be keeping track, because the changes are occurring so fast and from different angles,” says Javier Paz, who follows foreign exchange trading for Boston-based research firm Aite Group. “I think the markets are still in flux and will remain so for the next year or so, until we can tell with certainty that one model seems to be prevailing.”

Although advances in technology have produced some clear gains for currency traders, there have also been some distinct downsides from the point of view of institutional traders. Perhaps the biggest concern is the growth of high frequency trading, which has roiled equity markets in recent years. Typically, high frequency traders go in and out of the market in a fraction of a second, posting bids and then removing them almost instantly, to the detriment of regular, slower traders like institutional investors and banks.

In fact, so great was the concern about market manipulation by high frequency traders that market volume on one of the largest trading venues, EBS, declined by 50 percent between July 2011 and July 2012. Several reasons were advanced for the drop, but one thing was clear: EBS’s traditional client base was abandoning the platform for other venues — an apparent snub by banks concerned about the influence of high frequency traders on the market.

In response, EBS’s owner, ICAP, moved to repair its tarnished image. In March 2012 it named a new CEO, Gil Mandelzis, to run EBS. Mandelzis is co-founder and chairman of   Traiana, a firm used by banks for its automated posttrade processing and risk management that ICAP bought in 2007 for $247 million. (ICAP sold a 12 percent stake in Traiana to seven major banks in January.)

By September, Mandelzis had pushed through a number of rule changes that make it more expensive for high frequency traders to dart in and out of the market to the disadvantage of more-traditional traders.

主要变化正在从十进制系统中恢复到旧式的PIP系统，在哪些货币价格以零或五个而不是十个小数中的一个而不是一个。对于利用套利战略的高频交易的公司来说，主要是对冲基金，EBS的举动使他们更加昂贵，以了解市场正在追踪的地方。EBS还提高了填充率，这意味着交易者现在需要更大的订单，而不是仅显示价格，然后在被称为闪存订单中删除它。

曼德尔齐斯说：“我相信过去的十年是由不断增长的速度主导的。”现有的多经销商平台已经变得过于专注于速度游戏。太疯狂了。” 这些变化使EBS 9月份的成交量立即上升了17%。曼德尔齐斯承诺会有更多的改变。例如，去年11月，他宣布，该公司将推出一项名为EBS Direct的新服务，允许银行在同一EBS屏幕上直接向自己的客户提供定制价格。

While EBS is trying to regain lost market share, other players are moving quickly to try to eat EBS’s lunch and capture a larger slice of the wholesale market.

A number of big FX banks, including Barclays, BNP Paribas, Deutsche Bank, Royal Bank of Canada and UBS, have invested in a rival trading platform named traFXpure, aimed directly at the interbank spot market now controlled by EBS and Reuters. TraFXpure is owned by Tradition (UK), a subsidiary of Switzerland’s Cie. Financière Tradition. The London-based interdealer brokerage operates an FX options platform on a hybrid model using both voice and electronic transactions, and sees a move into the wholesale market as a logical extension of its business.

TraFXpure的董事总经理Roger Rutherford表示，TraFXpure计划在今年年初上线，它将提供一种“在一个人人都遵守一套统一规则的环境下，获得良好价格发现和流动性的经济有效的方式。”，前芝加哥商品交易所外汇交易主管，曾在EBS所有者ICAP工作过10年。

卢瑟福没有直接提及EBS与高频交易员之间的问题，他说：“如果你在那里试图操纵系统或扰乱市场，那么你就不适合我们。” 该平台将使用一种技术，消除所谓的低延迟交易的优势，即高频交易员将其服务器放在货币平台服务器附近，以期在微秒时间内领先于其他交易员。TrafExpure平台上的所有交易员都可以访问相同的数据，包括交易对手的身份，这是大多数系统无法提供的。

“I think people like transparency and openness,” Rutherford says. “You could argue that hiding names gives comfort to people to disrupt markets because no one knows who they are. Revealing who is trading with whom at what time makes it so much more transparent; therefore you’re less likely to try to game the system.”

Not all companies are eschewing the high frequency trader, however. Credit Suisse has partnered with Forex Capital Markets, an online foreign exchange brokerage commonly known as FXCM, to form FastMatch, an electronic network offering the kind of unparalleled speed that Credit Suisse developed for its equity-trading engine, Crossfinder. “We took what we consider to be the best-in-class technology that originated in the equities end and modified it to the FX market,” says Robert Maher, the London-based global head of fixed-income electronic sales at Credit Suisse. “Now we both have access to very good technology.”

FastMatch表示，它可以在100微秒内进行交易，比任何其他平台快10到20倍，并通过实时分配贸易价格来保持透明度。

2012年6月，FXCM支付了1.76亿美元，从其所有者，Dierk Reuter和Matthew Wilhelm获得了一个基于伦敦的货币流动资金提供商的Lucid Markets Trading 50％的股权。四个月后，汤森路透社宣布正在调查Lucid Markets在使高速外汇交易通过与路透社网络有多次联系进行高速外汇交易时是否获得了不公平的优势。“作为一个最大的FX交易社区的运营商，为社区提供一个水平和公平的比赛领域是至关重要的，”汤姆森路透社发言人说。在盈利会议上，FXCM首席执行官Drew Niv表示，汤森路透社已授权所有联系，并为他们支付了Lucid。汤森路透社尚未披露其调查结果。

For the institutional asset manager, perhaps the biggest news was that Thomson Reuters had expanded its footprint in the currency platform market by buying FX Alliance, also known as FXall, for $625 million. The deal, which closed in August, gave one of the largest wholesale dealers an entry point into the growing institutional market.

“FXALL对我们来说很有意思，因为它的客户群是它的服务，”路透社市场的市场负责人Jasbir Singh说。“这些是我们的新客户。FXALL是关于机构资金的工作流程：那种制度投资者说，'我正在运行所有这些不同的账户和所有这些子波教组合，我希望能够在他们身上做FX。“亚博赞助欧冠

辛格称，路透社将把这两个平台分开，因为它们服务于不同的市场。但毫无疑问，技术正在帮助批发市场和机构市场融合。”路透收购FXall是一个很好的例子，说明像我们这样的人相信现在有机会，因为这些机构市场开始变得更像我们的批发市场，”EBS的Mandelzis说。

辛格说，尽管体制市场的卷增加，但很难看出所有新进入者如何生存。“新的初创企业将是艰难的，因为你需要的是社区，”他说。“你需要所有参与者都在你的平台上，如果价格低，你没有真正的独特的东西，那么我努力看他们将如何获得牵引力。”

FXall CEO Philip Weisberg agrees with that viewpoint, asserting that most of the new platforms are really new features or enhancements, most of which are being incorporated into FXall, and not radical departures.

“The platforms are always competing in features, but I never feel that a single client will switch because of a single feature,” Weisberg says. “They look at the portfolio of features you offer and the portfolio of liquidity you offer and make decisions based on the total package.”

Daniel Royal, global co-head of equity trading at mutual fund firm Janus Capital Group, says that although his firm uses FXall as its main platform, many of the trades take place on the telephone because FXall does not yet support the netting of foreign exchange transactions. For example, if one of Janus’s mutual funds sells €100 million ($133 million) of Bayerische Motoren Werke stock and another buys €50 million of France Télécom, Royal wants the firm to net out the foreign exchange component of those transactions — selling only €50 million — before issuing a buy or sell order.

“我们一直在使用我们目前的平台来构建这种能力，而且它的过程比我们想要的速度较慢，”Royal说。

Because of the demands for new types of services, TradingScreen, which was originally set up by two former Credit Suisse bankers to trade equities, is now getting a lot of attention. It has a number of liquidity providers available on the screen, including bilateral bank feeds and multibank networks. But it also offers software services to institutional investors like AXA. So a trader buying a foreign stock will automatically know his or her currency exposure on the screen. At the end of the month, TradingScreen’s system does a transaction cost analysis to show whether any of the FX trades were far out of the average price at the time of the trade.

“Both single-bank and multibank platforms come to TradingScreen to provide them with access to all the liquidity, as well as the functionality, which isn’t available anywhere else,” says Jean-Philippe Male, who heads the outfit’s FX and fixed-income divisions.

另一种类型的新参赛者是FXSPOTSTREAM，它试图将其所看到的内容视为单行平台和FXALL等多银行平台之间的差距。

首席执行官Alan Schwarz解释说，他的平台不匹配价格但是是基础设施公司。它提供将七个银行连接到机构客户端，只需一台计算机电路而不是七个，保存客户七个连接的通信费用以及它必须支付FXALL的佣金费用。

“我们已经降低了客户和银行的交易成本，”施瓦茨说我们不决定银行与谁交易；这是他们的决定。”

随着市场的所有这些新平台，人们可能认为银行直接向客户提供的双边平台正在遭受痛苦，但情况并非如此。事实上，EBS的Mandelzis表示，他的平台去年丢失的大部分贸易额搬到了单人间平台，而不是竞争多伯银行平台。

“We have benefited by offering up our high-quality product without some of those negative influences,” says Marek Robertson, head of electronic sales for Barclays bank and its BARX FX platform. BARX is available to clients on multidealer platforms as well as to clients bilaterally, but only to buy-side institutions that have a preexisting relationship with Barclays.

罗伯逊说,新的交易pl的扩散atforms has tended to reduce concentration in the market and erode the position of  big banks. With the rise of a “credible number” of electronic market makers, including nonbank financial entities, “it feels like you are actually getting a little bit of broadening-out as the capabilities have become more broadly available,” he says. Kevin Rodgers, London-based global head of foreign exchange at Deutsche Bank, which II’s sister publication Euromoney ranks as the largest FX dealer in the world, says banks now feel the need to be present in many different venues besides their own to meet customer demand.

“我们在这项业务中为客户提供服务，”Rodgers说。“我们无法判断他们是如何要处理的，因此我们需要在我们为其服务的方式方面灵活。如果我们说我们已经决定了我们要为他们提供服务的唯一方式是通过电话，我们缺乏业务。我们已经死了。这就是为什么我们传播我们的赌注。“

罗杰斯说，尽管许多做市商可能在现货交易中发挥作用，但银行对市场的重要性一如既往，因为它们有能力为客户提供货币衍生品和远期合约。

“正在管理的风险的特殊性意味着您需要来市场制造商，”Rodgers说。“在衍生品的世界里，银行承担风险，他们试图用其他东西抵消它。他们是一种风险的群体，真的。“

现货交易，许多电子平台所做的那种实际上不是一个非常有利可图的业务，罗杰斯笔记。“每单位交易和对冲外汇风险的最终用户的成本崩溃了，”他说。“我们仍然在业务的原因显然是卷大规模增加。”

Richard Anthony, head of e-risk for FX and metals at HSBC Holdings, says that although eight banks might compete for an asset manager’s business on a multibank platform, there is a new phenomenon that he calls the winner’s curse. It happens on some platforms because the banks that don’t get the business can see the winner’s bid and build positions in that currency using that as a benchmark. This is a relatively new development as banks ramp up their computer power.

安东尼说：“有时你不想赢得交易，因为有一个信息泄露给其他七个没有赢得交易的流动性提供者，他们自己就可以围绕这一信息进行交易，这可能会使风险管理更加困难。”。

由于担心信息泄露可以tip the market to investors’ currency trades, telephone trading will always have a place in the foreign exchange market, especially when complicated trades are involved. But when it comes to bread-and-butter spot FX trading, the race is now afoot to handle this business in the most cost-efficient manner. Institutional investors recognize they can reap significant savings and use them for generating profits in other areas. The solution is to pick the best technology, but it may be some time before it is clear which platform can succeed in embracing the right mix of tools and liquidity providers that customers are seeking.