e-FOREX - Amazon S3 · the two largest pools of buyers and sellers into one unified trading environment. 88. VIEWPOINT - Open Access and unbiased flexibility for Forex Traders sets

e-FOREXe-FOREXe-FOREX

transforming global foreign exchange markets

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Underpricing Liquidity - ePlatforms increasing systemic risk

FX e-Commerce- a changing shopping basket

FX Algorithmic Trading - eFX paves the road

FOCUS on Asset Managers - e-commerce helping to add value

Underpricing Liquidity - ePlatforms increasing systemic risk

FX e-Commerce- a changing shopping basket

FX Algorithmic Trading - eFX paves the road

FOCUS on Asset Managers - e-commerce helping to add value

april 2005

One of the growing challenges we face in publishing this

magazine is trying to provide the latest and most

comprehensive eFX business and technology information

for an increasingly diverse readership amongst the global FX

market. Ranging from banks and the inter-bank market, from

corporate treasurers to private retail FX traders, from the

professional trading community (PTC) who include fund

managers, CTA’s and hedge funds to trading technology and OMS

vendors. The list seems to go on and represents a quite

astonishing number of different participants.

In his article in this edition, Peter D’Amario picks up on this

diverse nature of the eFX market when remarking that it is the

unique needs of FX customers which is serving to explain why

the eFX market has yet to witness a long-predicted consolidation,

and why, by contrast, the ranks of electronic trading service

providers continue to expand. He believes we are now witnessing

in the FX market what should probably be termed a redefinition,

as opposed to consolidation. This is evidenced by new providers

customizing their business models to serve segmented markets

such as hedge funds and retail customers.

Certainly there was talk of consolidation last month after the

demise of Centradia, but it’s interesting that contrary to industry

opinion, Celent believes there is room for all the existing multi-

dealer platforms. Their sustainability and growth would be driven

not only by increasing trading volumes and e-trading but also

due to the many different types of FX customer for the platforms

to target which therefore reduces the head-to-head competition

which is seen in other markets. Who could say what would

happen however, if a centralised, market-wide trading system

were to become properly established.

We look forward to meeting you at the forthcoming 44th ACI

World Congress in Stockholm and as usual hope you enjoy this

edition of the magazine.

Charles Jago

Editor

e-Forex

Spring 2005

welcome to

Susan [email protected] Editor

Charles [email protected] (FX & Derivatives)

Charles [email protected] Manager

Helen [email protected] Manager

Alan [email protected] Manager

Louis [email protected] Manager

Anthony [email protected] Manager

Helen MurrayPhotography

ASP Media LtdWing of the Hill, Northend, Batheaston BA1 8EN United KingdomTel: +44 1225 851 345 (Main)Tel: +44 1225 858 132 (e-Forex)Fax:+44 1225 858 393

Design and Origination:Phill Zillwood Design [email protected] in the UK by Broglia Press

e-Forex (ISSN 1472-3875)is published quarterly in January, April, July and Octoberwww.e-forex.net

SubscriptionsSubscription rates (including postage)UK & Europe: £120 per year Overseas: £150 per yearPlease call our subscription department for further details:

Subscriptions hotline: +44 (0) 1225 858 132

Although every effort has been made to ensure theaccuracy of the information contained in this publicationthe publishers can accept no liabilities for inaccuraciesthat may appear. The views expressed in this publicationare not necessarily those of the publisher.

The entire contents of e-Forex are protected by copyrightand all rights are reserved.

Companies and organisations in this issue:

Godfried De Vidts 50 years of ACI

Edward PlaUnderpricing Liquidity

Mitchell D. MittmanFX Algorithmic Trading

Katrin Lütjens White Labelling Surgery

2 april 2005 e-FOREX

Peter D'Amarioe-Forex growth

David Mallinder FX e-commerce & beyond

Peter HarwoodFX Recruitment

Andrew Kidde-Forex Interview

A

ABN AMRO page 127ACI page 22ACM page 81ACT page 20Advanced Financial Engineering page 103Advent page 103AIG Trading page 18Apama page 73Avecia Ltd page 7

B

Bank of England page 20Banc of America Securities page 73Bank of Tokyo-Mitsubishi page 8Barclays Capital page 6Baxter Solutions page 27BIS page 80Bloomberg page 57BNP Paribas page 9British Bankers Association page 20Brown Brothers Harriman page 41

C

Calyon page 45Celent Communications page 32Centradia page 32Charles River Development page 106Chicago Mercantile Exchange page 84Citibank page 6CFTC page 14CMC Inside

Back CoverCognotec page 33Commerzbank page 58Currenex page 15

D

Danske Bank page 67Deutsche Bank page 28DST International page 103

E

EBS pages 4 & 5eSignal page 115eSpeed page 52Eurobase Systems page 38Euromoney page 8Eze Castle Software page 103

F

FFastFill page 16Financial Models page 103Flextrade page 103FXall page 23FXCM page 89FX Concepts page 98FX Engines page 12

G

GAIN Capital page 105Global Forex Trading page101GL Trade page 103Greenwich Associates page 28

H

Handelsbanken page 71HeidelbergerDruckmaschinen AG page 42HotspotFX page 13HSBC page 92

I

IFX Markets page 19INDATA Systems page 103IntegralDevelopment Corp page 11

J

J.P Morgan page 73

L

Latent Zero page 72Lava Trading page 87Linedata Services page 103

M

Macgregor page 103Mellon Financial page 7McElhannon Group page 12MG Financial page 14Microsoft page 62Miletus Trading page 103Misys page 10

N

NFA page 14Nordea page 21

P

Portware page 103PriceWaterhouseCoopers page 20Principal Search page 48

R

Radianz page 64RBS Financial Markets page 110Refco Capital Markets page 75Reuters page 34

S

SAP page 42Saxo Bank Inside

Front Cover SEB page 18SmartTrade page 79Standard Chartered Bank page 31State Street GlobalMarkets page 17Stentra page 60Summit Systems page 97SuperDerivatives page 16SWIFT page 66Swissforex page 16Synthesis Bank page 118

T

Telerate page 51360T Treasury Systems page 90Towergroup page 72TNS page 76Tradertools page 46Tradingscreen page 72Traiana page 18Townsend Analytics page 88TWIST page 66

U

UBS OutsideBack Cover

W

Wachovia page 63Wall Street Systems page 14 Scott Owens

Historical Testing

Brian Maccaba Price distribution

Foreword22. Looking forward to the next 50 years of ACI

Godfried De Vidts, President of the ACI, looks at why2005 is an important year for the ACI as it celebratesits 50th anniversary.

Leader24. Underpricing Liquidity – ePlatforms increasing

systemic risk

Edward Pla talks about the debate surrounding FXLiquidity and why it’s heating up.

Features28. Could the expansion of EBS Prime unleash a new

phase of e-Forex growth?

While EBS Prime is some way from establishing itselfas a true buy-side system, the implications of itspossible success cannot be overstated argues PeterD’Amario.

32. Trends in the electronic cash Foreign Exchange

markets

Jodi Burns outlines how the forex market is goingthrough many of the exciting market trends seen inmore developed asset classes such as equities andfixed income.

34. How the FX e-commerce shopping basket is

changing

Mark Redwood describes how banks are now facedwith a new set of decisions that will have significantimpact on their future position in the marketplace.

38. FX-e Commerce & beyond – Providing Treasurers

with more than just execution toolsFor corporate treasurers, e-commerce is movingtowards providing a holistic set of products andservices. David Mallinder shows how this isn’t limitedto just FX price discovery and execution.

42. Case Study - e-Forex talks with Bernd Hampele,Senior Project Manager, and Bernd Bublies, Head of Front Office, at Heidelberg-basedHeidelberger Druckmaschinen AG.

48. Global FX Recruitment: How is e-Commerce

shaping the future?

Peter Harwood examines how e-business is affectingthe pattern of Global FX recruitment.

54. Real-time transactions, real life issues

Brian Maccaba looks at how banks are approachingthe challenges and opportunities of price-distributionin a new foreign exchange trading environment.

60. API’s boosting access to eFX solutions

James Kemp takes a look at the growing importanceof API’s and the benefits that both buy and sell-sidederive from them.

64. FIX – aiming to improve the FX Trading process

Chris Pickles discusses how FIX will enable changeand increased efficiency within the FX industry.

68. e-FX paves the road for FX Algorithmic trading

The advent of e-FX has made Algorithmic tradingpossible in the FX world. Mitchell Mittman highlightsthe increasingly important role Algorithmic tradingwill play in FX.

72. Algorithmic trading – FX market perspectives

Heather McLean gathers some industry views on thefuture of Algorithmic trading in the FX markets.

76. Extranets: Providing a secure framework for eFX

Alan Schwartz considers the two basic networkoptions for electronic FX trading, the standard Internetand secure Extranets.

80. SPOTLIGHT - Automating FX Give-Ups in an

Electronic Age

84. CME FX on Reuters - Combining the best of two

worlds

Rick Sears examines the potential impact of bringingthe two largest pools of buyers and sellers into oneunified trading environment.

88. VIEWPOINT - Open Access and unbiased flexibilityfor Forex Traders sets RealTick® apart

90. SURGERY – FX White Labelling – questions fromthe sell-side

98. IT Integration of FX Electronic trading platforms:

the impact on the buy-side

Kelly Adams looks at the proliferation of buy-sideelectronic FX platforms and how this is creating somemajor integration challenges on the IT side .

120. Historical Testing – Leveraging online tools for

more consistent FX Trading

Scott Owens examines how automated tradingsystems now allow the trader to construct customstrategies for attacking the market with consistencyand discipline.

124. LOG-OFF - Improving connectivity between the

trader and the market

The e-Forex Roundtable92. Single bank platforms – offering clients innovative,

multi-product capabilities

5 major FX banks debate questions on this key topic

FOCUS – eFX & Asset Managers

102. Trading Technologies: Competition drives decline

in prices

Denise Valentine looks at how technology vendors aretargeting asset managers and the resulting impactthat greater access to automation and externalconnectivity is having on more of them.

106. FX Automation: It’s not about “electronic” it’s

about “workflow”

The key is for asset managers and technologyproviders to partner and leverage technologies saysRichard Enfield which will help create animplementable workflow.

110. FORUM: eFX – adding value to the investment

management process

4 major players discuss the main issues

The e-Forex interview127. With Andrew Kidd, Executive Director, EuropeanHead of FX eClient Development at ABN AMRO.

Underpricing Liquidity

E-commerce shopping basket

FIX and FX trading

Extranets versus the Internet

contentsApril 2005

april 2005 e-FOREX 3

Greater liquidity, wider community and better rates – exclusively through the growing network of EBS Prime banks.

EBS®™, EBS®™ Prime and the EBS logo are trademarks of EBS Group Limited and are registered in a number of countries with applications pending in others.

EBS®™ Prime

The level playing fi eld just got wider.

Are you part of it?

Find out more about EBS Prime.Go to www.ebs.com

EBS Prime banks:

newsBarclays Capital introducesadditional decimal placesBarclays Capital has introduced additional decimal places across itse-FX products. Precision pricing is a pioneering move designed toreflect prices more accurately and will give clients more flexibilityon pricing decisions. Where previously all banks were making thesame spread, Barclays Capital will now be able to shade prices byincrements of a pip. The extra decimal place will be represented asa small figure for clarity. The firm will also be using these prices onmultibank portals and FIX API connections which will be switchedon as and when the channels allow this format.

The currency pairs included in Precision pricing include EUR/USD,GBP/USD, EUR/GBP, USD/JPY, EUR/JPY, USD/CHF and EUR/CHF.

Asset Managers’ volume onFXall grows by 146%FXall has revealed that trading by asset managers in 2004 hadincreased 146% to $1.036 trillion. FXall’s overall volumes in 2004reached $4.9 trillion, up 104% from 2003. The company also reportsthat its total number of asset manager clients has risen to 135.

These clients manage estimated total funds of $15 trillion,representing a high proportion of the funds under management inthe global investment industry. The average trade size on FXall hasrisen 83% in the last year as asset managers push higher volumesthrough the platform.


Trading models now live onBNP Paribas FX PortalBNP Paribas FX Strategy Technical Trading Models are nowavailable live on the BNP Paribas FX Dealer Portal, providingcustomers with live trading signals on 19 currency pairs, includingemerging market currencies as well as the majors and eurocrosses, 24-hours a day. The trading models can be used forhedging, overlay or trading purposes.

Extensive statistical performance analysis has also been recentlyadded, providing the capability to track the performance ofindividual currency pairs or a portfolio - detailed performancehistory since 2001 is available on the FX Dealer website. Theperformance statistics can be examined on a monthly or annualbasis and provide not only detailed analysis of returns, but also riskanalysis information. Automatic e-mail notification of changes tothe trading model positions and signals is also available.

Citigroup releases enhancedCitiFX® White Label Citigroup have announced the release of a new version of CitiFX®

White Label. This latest version will provide enhanced liquidityrouting for forward outrights, a new credit limit API and newfunctionality to manage trade breakouts and spreads. The bank hasalso expanded their customer management functionality.

The Citigroup White Label solution offers a host of benefitsincluding a very extensive range of currencies available 24 hours aday; a functionally-rich and very flexible technology platform thatcan be customised to meet different partner bank requirements;pricing into multi-bank portals; specially designed screens andfunctionality for end clients, sales teams and traders.

Global Link releasesCompetitive Swaps moduleGlobal Link, the e-finance platform of State Street Global Markets,has recently released a Competitive Swaps enhancement to theiraward winning eFX execution platform, FX Connect. This newrelease is now being rolled out to the FX Connect user communitywhich includes buyside clients as well as 45+ liquidity providers inover 130 dealing locations worldwide.

The module allows clients to request a single or two-way price fromup to 4 banks simultaneously. Consistent with other trading on FXConnect, clients can enter swaps of any currency pair or size, andalso any style, such as Fwd\Fwds or mismatches. In keeping withmarket convention, banks can initially price using just the points, orboth spot and points.

news

Mellon enhances IDeal ForexMellon Foreign Exchange has recently unveiled the latestenhancements to its IDeal Forex online trading platform. IDealForex can now process an unlimited volume of internationaltransactions. It accepts desktop, Web file upload and filetransmissions, and now enables users to remit payments bySWIFT, check and EFT.

These enhancements are intended to broaden a corporation’s FXcapabilities and may be used for vendor payables, payroll/pensionand beneficiary remittances for stock options and dividends.Extensive reporting features include payment tracking, access tomore than 100 standard reports and custom reporting uponrequest, at no extra cost. In addition, users can benefit from bulkpricing and bulk payment features.


Major deal using RBS FiXThe Royal Bank of Scotland Financial Markets (RBS Financial Markets)in conjunction with RBS Structured Finance has transacted a €495million foreign exchange deal for Avecia Ltd, a leading fine andspeciality chemicals company, using the bank’s RBS FiX electronictrading system. Avecia was undertaking the sale of its main businessunit, NeoResins, based in Holland, generating euro receivables.

Avecia decided to transact the deal using RBS FiX system, whichgenerates foreign exchange benchmarks. This provided them witha transparent market benchmark price that is independentlyaudited and published to the market.

Calyon selects Reuters todeliver FX trading platformCalyon has selected Reuters, as its technology partner in deliveringits foreign exchange trading platform for its corporate and financialcustomers. Calyon’s revamped service, called Aquarius, forms partof its web-based range of services, which are used by a wide rangeof clients including corporate, financials and internal users servicedout of their London, New York and Hong Kong offices.

The RET-AD ASP (application service provider or hosted) option’sfast implementation and flexible technology has enabled Calyon toextend its automated and other FX services to clients. With RET-AD, the bank’s customers will see live streaming rates and be ableto trade either directly with Calyon or with multi-dealer platformsover a standard internet browser.

newsIFX Markets launchesnew-look IFX DirectIFX Markets has launched a new-look release of its IFX Directforeign exchange trading platform, incorporating a range ofground-breaking features. These include:

• Simultaneous trading -In multiple currency pairs

• Multi-account trading -Via amounts or percentages

• Client-customiseable windows

• Deal ticket incorporated into the quote window

• Ability to create both simple and complex linked orders

• Online account status – real-timeback office access

• Advanced, integrated chartingand news packages

Managing Director JamesThornton said: “IFX Direct’s newstate-of-the-art platform reflectsour determination to capitalise onour IT strengths in providing ourcustomers with unmatched speedof execution, and transparentonline liquidity.”

Nordea Analyticsextended by IAS 39 toolNordea is cooperating with PricewaterhouseCoopers to advise itscustomers in the best possible way regarding implementation ofthe new IAS 39 accounting rules for financial derivatives. One resultof this cooperation is a new tool, IAS 39 Hedge Effectiveness Tester,for calculating and evaluating hedge effectiveness.

The IAS 39 tool enables customers to perform hedge effectivenesstests in order to use the rules for hedge accounting. The user inputsa hedge package which can for example consist of a commercialcash flow hedged with an FX forward. It can then be tested usingvarious IAS compliant methods (both prospectively andretrospectively). The Hedge Effectiveness Tester is offered as anintegrated part of Nordea Analytics thus offering the customers thepossibility of making analysis of hedging strategies, risk- andliability management etc in a coherent advanced analysis package.Nordea Analytics has more than 1000 unique active monthly usersamongst corporates and institutions in the Nordic market.


Hotspot FXi StreamingPrices Best in Euromoney Poll Hotspot FXi topped the 2005 Euromoney Internet Technology Awardsas Best in Automated Streaming Prices. The Hotspot FXi marketplacewas also a top-five finisher in other key foreign exchange categories,including Best Non-Bank Foreign Exchange platform. “Automatedstreaming prices have always been an important component ofHotspot's market structure, we introduced live, streaming, executableprices in 2001,” said John H. Eley, President and CEO, Hotspot FX Inc."We were pioneers in streaming technology and we are continuallyimproving it to make it more efficient."

Hotspot FXi’s executable streaming prices are supplied by 10 top-rated foreign exchange dealing banks. These streaming prices,together with the platform’s client bid/offer capability, full depth-of-market view and comprehensive anonymity form a robustmarketplace that is used by the world’s premier hedge funds,institutional investors, and corporate treasuries. Volumes onHotspot FXi grew nearly 150% in 2004, putting it in the top rank ofspot trading venues.

BTM goes live with Cognotec'sMarket Rate ManagerForeign exchange solutions provider Cognotec announced that TheBank of Tokyo Mitsubishi (BTM) has gone live with the Market RateManager (MRM) solution. MRM is part of Cognotec's AutoDealrange of solutions, already used by BTM to service its clients online.

The bank is using MRM to provide a single source of bank-specificrates to various internal systems and global clients on FXall andFX@BTM its online service. In addition, MRM's time zonefunctionality gives the BTM's London and New York offices moreindependence in providing their own rates to clients. "Historically,eFX systems have relied heavily on generic rate feeds. The MRMimplementation has allowed BTM's dealers to generate a 'bank rate'more accurately and with complete visibility, thus giving dealersgreater confidence in quoting larger amounts automatically. Thishas integrated BTM dealers into the overall eFX workflow,"explained Denis Sweeney, MD of Cognotec Asia Pacific.

James Thornton

Global Solutions, Locally Applied

By combining global reach and localunderstanding BNP Paribas delivers a tailor-made

service for our clients in foreign exchange.

The bank for a changing world

BNP Paribas London Branch is authorised by CECEI and AMF and is regulated by the Financial Services Authorityfor the conduct of its investment business in the United Kingdom.

news

Spreadsheet Tradingannounced by CurrenexIn response to demand from its hedge fund clients, Currenex hasadded Microsoft Excel based Spreadsheet Trading to complimentits existing Execution and Order Management suite.

Clients can now build their own models in Excel using MicrosoftVisual Basic. It is now possible to:

• Have live streaming executable prices in Excel

• Make real-time automated trading decisions from Visual Basic

• Download executed trades into Excel

• Real-Time Mark to Market positions in Excel

• Calculate real time P & L

• Send multiple order types (Limit, Stop, Market) with differentexpiry conditions

• Send blocks of orders in batch mode from Excel


Bloomberg releasesnew interfaceBloomberg L.P. has released a new interface for executing foreignexchange transactions. Buyside clients are now able to accessstreaming liquidity from their choice of participating banks. Therehas been strong demand from Bloomberg buyside FX customersfor a quicker, more efficient means of executing their FXtransactions, and now it is available.

Coupled with STP and highly interactive blotter capabilities,Bloomberg FX customers can leverage cutting-edge FX executiontools, as well as the ability to analyze the quality of their executionsover time. In addition to having access to multiple transactiontypes, Bloomberg customers now have the ability to leave ordersand pre- or post-allocate trades to the relevant accounts.

Commerzbank Corporates& Markets launches comforex:plusCommerzbank Corporates & Markets (CBCM) has launchedcomforex:plus, a new foreign exchange electronic trading system.The new technology provides a global service for corporate andinstitutional customers in an extensive range of foreign exchangeproducts via both a proprietary platform and significant multi-dealer portals.

Holger Kemm. Head of Electronic Distribution, commented: “Weare delighted to be able to provide our clients with a system thatoffers state-of-the-art functionality such as streaming prices andone-click trading.”

360T and Misys to offerjoint services360T®, operator of leading European Cross-Product MultibankPortal TEX®, has signed a strategic partnership agreement withMisys. The partnership enables integrated use of 360T’s FX andMM trading platform with Misys Treasury, the post-trade servicesASP serving around 4,000 users worldwide. Under the partnershipagreement, clients of both providers will have access to 360T’sexecution platform and considerable network of top-tier liquidityproviders in a collaborative suite with Misys’ leading confirmationand settlement service.

Christoph Perger, Managing Director of 360T, says: “We see modularcollaboration between best-of-breed providers as a powerful way ofdelivering superior services.”Mark Davies, CEO of MisysGlobal Managed Services,adds: “Our partnership with360T broadens reach of ourindustry benchmarkconfirmation, settlement andreporting services intomultibank trading for corporatetreasurers and fund managers.We look forward to cooperatingon smart automation and STPsolutions for highly efficienttreasury operations.” Christoph Perger

D U B L I N • L O N D O N • M O U N T A I N V I E W • N E W Y O R K • S I N G A P O R E • T O K Y O • T O R O N T O

w o r l d w i d e

s t a t e - o f - t h e - a r t

u . s . p a t e n t e d t e c h n o l o g y

i n t e r n e t

s o f t w a r e & s e r v i c e s

i n n o v a t i o n i n c a p i t a l m a r k e t s

e - b u s i n e s s s o l u t i o n s

e n t e r p r i s e j a v a

Welcome to next generation eFX.

To upgrade your eFX solution, contact [email protected] or visit http://www.integral.com/eFX.

i n t e g r a l d e v e l o p m e n t c o r p .

newsACM adds new currency pairsGeneva based ACM Advanced Currency Markets part of the Refcogroup of companies will be adding several new currency pairs andprecious metals to it’s online dealing platform.

Nicholas Bang executive director& partner of ACM says, ”Ourclient base has grownexponentially over the last yearsince Refco acquired majorityownership of ACM. As a result wehave seen increased demand fornew currency pairs and preciousmetals. In the following days wewill be adding Spot Gold andSilver in addition to USDMEX,EURNOK, CHFNOK and GBPNOKin the first instance and soon tobe followed by 20 to 30 or soother currency crosses”. The new release will bring the amount ofavailable currency pairs to 23. ACM confirms that all new currencieswill be executable with the exact same methodology the companyhas supplied up to now, namely with the tightest spreads possible,without any request for quote or any slippage.

GFT Introduces InciteFX™

Forex Trading Signals ProgramGFT has announced that it has partnered with McElhannon Group,Inc. to offer a new institutional quality forex trading signalsprogram called InciteFX™. “Individual forex traders finally haveaccess to the same trading signals programs that institutions haveenjoyed for years,” says Gary L. Tilkin, president and CEO, GFT.

Each trading signal suggests a forex market position or several withina given time period and is delivered directly to traders using GFT’sDealBook® FX 2 trading software. InciteFX™ features buy/sell andstop–loss signals that concentrate on three specific currency pairs attwo intervals per day. At 8 a.m. or 8 p.m. EST (1 p.m. or 1 a.m. GMT)traders simply login into DealBook® FX and use the analytics featureto enter the information contained in the trading table. The InciteFX™

program uses a floating three–cross–trade–per–day strategydeveloped by leading Commodity Trading Advisor Philip Worley, anauthority in institutional forex research and consulting for over 30 years.

FX Engines launches livetrading serviceFX Engines has announced the launch of its live trading service,completing its offering of full life cycle trade management. The FXEngines platform enables traders to build, test, and deploy advancedtrading systems quickly and without programming. Once deployed,FX Engines automates all order execution through multiple FXdealing partners, freeing traders to focus on high-level strategy.

Scott Owens, CEO of FX Engines, says “Everything we’ve learnedabout trading forex points to automation as the optimal solution.Whether automation is complete or partial, the ability to placestrategies on auto-pilot empowers traders.”


Saxo Bank enhancesTradeMakerSaxo Bank's TradeMaker module now makes it possible to tradedirectly on their expert's predictions without translating theanalysis into individual and often complex trades. TradeMakermakes trading on their analyst's suggestions, easy, direct andaccurate and offers:

• Trading under the expert advice of their analysts • Fast, direct trading on market predictions • Fine-tune strategies to your own market expectations • Trades placed as linked 3-way orders with stops and take profits• Elimination of errors in trade placement

TradeMaker also offers the flexibility to change all the tradeparameters including:

• Entry level to trigger the trade• Stop level if the market moves against the position • Take Profit level where you exit the position to take

Nicholas Bang

newsMG Financial Groupenhances its DealStation™ platformMG Financial Group recently unveiled the latest upgrades to itsproprietary DealStation™ trading platform. The platform is nowavailable in a number of language options including Chinese(Simplified and Traditional), Japanese, Russian, Spanish andGerman. In addition to improved reliability the latest release alsofeatures integrated charts complete with technical analysis studies.

The MG platform offers extra flexibility by allowing customers toadjust the contract size for each trade from 10,000 to 5 million of thebase currency. Live account holders have access to wireless tradingand a forex alert service at no additional cost. MG Financial Groupis a Futures Commission Merchant (FCM) registered with theCommodity Futures Trading Commission (CFTC) and a member ofthe National Futures Association (NFA) in the United States.

Wall Street Systemsoffers eOperations toolWall Street Systems has been working with its banking customersto extend their treasury and trading capabilities to their clients. IneFX a significant amount of time has been devoted to pricediscovery and trade execution, but Wall Street Systems hasrecently been focusing attention in the "eOperations" area as well.

Through its eOperations tool, Wall Street Systems now provides itsbanking customers with facilities to enable their clients to affirm,confirm, authorize, settle, and net trades over the internet. Thesecapabilities are entirely integrated with The Wall Street System®

workflow and settlement engines, meaning that all client actionsare logged in the core back office modules and the bank's backoffice work load is reduced. Duplicate input is eliminated entirely.


Standard Charteredupgrades e-FX platformStandard Chartered Bank has begun the rollout of its upgraded e-FXplatform, On Line Treasury (OLT) v3. Improvements have been madeto the customer web front end and to the service provided to FXallclients (including faster pricing and increased autopricing amounts).

Rollouts have commenced for their web-based, Americas,European and Middle Eastern clients, with customers in Asiacommencing in Q2 2005. Further enhancements are planned forlater in the first half of 2005. These will include order management,money markets and changes required to enable further rollout toregulated markets.

Danske Bank now on RTFXDanske Bank has recently launched Reuters Trading for ForeignExchange (RTFX), the new trading platform which is available onReuters desktops. As one of the dominant banks in Scandinavia,Danske Bank was Reuters’ first strategic partner for RTFX. TheBank is ranked in the top 10 FX institutions in the world and boaststhe highest credit rating in Scandinavia and specialises in FX forScandinavian and all major currencies.

Danske Bank also offers a strong technical platform and a broadsuite of European products whilst maintaining a strong presencein emerging markets. Danske Bank has joined the RTFXcommunity because they believe the new platform, which isaccessible through Reuters, provides their customers with an easyroute to the Bank’s liquidity and competitive FX prices.

For more information about ESP™ contact Currenex at [email protected] phone +44 (0) 207 400 6200 or +1 212 685 5950

Price Takers

True StreamingOne Click TradingInstant execution24-hour, liquid marketTight SpreadsDisplays full Depth of MarketSpreadsheet TradingVolume Weighted Average price availableImmediate access to prime broker networkBenchmarks (auditable reference rates)

Price Makers / Intermediaries

Cost-effective tradingFlexible rates streaming - single stream to multiple customers, customised streams to individualcustomers - real-timeProtection from predatory trading

For Everyone

Rapid, simple integration with dealing and back-office systems Automated prime broker give-up and credit monitoringResting limit orders filled automaticallyStraight through processing White label trading solutions FIX Gateway

Executable Streaming Prices from Currenex. Instant execution, filled limit orders,automated prime broker give-up, full STP.

YOU DON’T NEED SIXTH SENSE FOR ESP™.JUST COMMON SENSE.

Currenex UK Limited is authorised and regulated by The Financial Services Authority

news

SuperDerivatives appointsnew VP Sales, Americas SuperDerivatives® has appointed Tim Murphy as Vice President forSales, Americas. In his role, Murphy will oversee several teams todevelop further the company’s growing business in both North andSouth America. He will also lead SuperDerivatives’ deepeningpenetration into hedge fund and corporate sectors, as well asmaintaining existing and establishing new senior level relationshipswith existing banks clients. In hisprevious position as executivevice president for MisysWholesale Banking Systems,Murphy was the Head of Sales andthe General Manager responsiblefor improving the company’s saleseffectiveness in the Americas. “I’mextremely pleased to have theopportunity to join the companyand play a role in helping itexpand further and deliver its newcutting-edge products to themarket,” says Murphy.


Swiss Forex developsSFoxTM platformZurich based Swiss Forex Ltd, has developed a unique investmentplatform called SFoxTM, enabling investors to allocate funds amongdifferent professional FX traders or FX trading companies based onthe trader’s profile which suits the investor’s needs best. Clients canaccess their accounts 24/7 over the internet and monitor theiraccount progress along the way to see the consolidatedperformance calculation.

Furthermore, for the first time ever, the investor can allocate or re-allocate funds via the included Multi Manager AllocatorTM (MMA),which gives the client the opportunity to stop or begin tradinganytime he sees fit. Customers and referring parties have the abilityto open accounts denominated in EUR, USD, CHF, JPY, GBP, AUD,CAD, and the Scandies. The customer base ranges from retailinvestors to multi-national corporations. With SFoxTM, a newgeneration of managed investment services has been born, offeringtransparency and flexibility to all stakeholders. Tim Murphy

GAIN Capital expandsproprietary Forex Research offeringGAIN Capital Group has recently released an enhanced forexresearch offering, available exclusively to trading clients andregistered users. Written by GAIN’s in-house team of marketanalysts and currency strategists, the research includes real-timemarket updates as well as daily and weekly reports covering bothfundamental and technical market analysis.

The new research is available directly on GAIN’s proprietary tradingplatform, FOREXTrader.

• Real-time, 24-hour commentary. Up to the minute informationand analysis from GAIN’s 24hr dealing desk, with an insider'sperspective on market events, news, dealer positions, and more.

• Daily Technical Analysis Report - Short, medium, and long termmomentum indicators with key support/resistance levels.

• Strategy of the Day – Key technical trends for both the majorsand crosses.

• The Week Ahead - A macro look at the upcoming trading week.• Weekly Strategy - Medium term trading opportunities based on

technical analysis.• Economic Calendar - Upcoming economic releases, with previous

results and current forecast.

FFastFill enables go-liveof CME FX on ReutersFFastFill has announced the go-live of its application service inLondon in support of the new CME FX on Reuters service, whichgives Reuters Dealing 3000 users direct access to CME’s foreignexchange (FX) futures and enhance the ability to seamlessly tradeFX spot and futures. FFastFill was chosen by Reuters as the launchpartner for this project in May 2004, and has been responsible forbuilding and maintaining a trade order routing service that enablestraders using Reuters Dealing 3000 to also execute CME’s FX futurescontracts.FFastFill has initially signed four major institutions for thisservice. These include ABN AMRO, Bank of America, HSBC and theRoyal Bank of Scotland.

“FFastFill is delighted that it hasbeen able to contribute to thishighly innovative industry projectworking alongside two of themost important firms in financialmarkets,” said FFastFill’sExecutive Chairman and CEO,Keith Todd. “We believe thisproject has the capability tochange the landscape of the FXmarket over the coming years as itcreates a bridge between OTCmarkets and exchange traded andcleared/CCP markets.”

Keith Todd

COMPANIES WHO MANAGEOVER 63% OF THEWORLD’S PROFESSIONALLYMANAGED ASSETS*

USE FX CONNECT®.

They trade with over 45 banks in more than 130 worldwide dealing

rooms, making FX Connect® the global standard for online institutional

FX. Foreign exchange is just one of the five asset classes traded on

Global Link™— built by State Street for the buy-side to streamline

workflow, ensure best execution, and embed best practices.

If you're already part of Global Link, you’re in good company. If not, contact

us at www.globallink.com.

INVESTMENT SERVICING INVESTMENT MANAGEMENT INVESTMENT RESEARCH AND TRADING

© 2005 State Street Corporation. 05-070SGM0305*Data source: Pensions & Investments July 2004, Money Managers’ Directory.

newsTraiana hosts HarmonyForumTraiana Harmony™, the industry standard for managing give uptransactions in foreign exchange, continues to build momentum. Traiana has added new members to the network and has also addednew capabilities to the inter bank messaging hub. This MarchTraiana hosted two user forums, in New York and London.Representatives from over thirty firms heard Traiana announcesupport for FX Options, as well as enhanced connectivity solutions,seamlessly linking Harmony into their line of business systems.

Harmony was initially created through an industry initiative. It wasfounded by leading FX Prime Brokers, Deutsche Bank, AIG Trading,JPMorganChase and Traiana, the leading provider of FX tri-partytrading solutions. Since the launch of the Harmony service in the fallof 2003 the number of participants has grown to over 20 banks andECNs, representing the overwhelming majority of the give up flow inForeign Exchange. Banks can connect to Harmony directly toautomatically send and receive Give-Ups, or access the systemthrough a simple web interface.

Summit launches real-timeCollateral Management moduleSummit Systems has launched a real-time collateral managementmodule which has been designed to fully manage the completecollateral management process in real-time, automating the wholeprocess from counterparty demands, pledges, identification andvaluation through to assigning and managing the collateral.Although collateral handling processes have been present withinSummit for several years, it managed the process in batch modeand there was an intention to expand its coverage and offer real-time functionality to fully meet its client’s needs for cross-assetagreements. This module sees the realisation of this plan.

Steve O’Brien, Product Director of Summit comments: “With theintroduction of Summit’s Collateral Management module ourcustomers are able to have one fully integrated system across assetclasses for managing their market, credit and collateral risk.”


EBS announces details of itsFX offering for PTCThe EBS®TM Prime offering is to be extended to the professionaltrading community (PTC), following a successful research anddevelopment effort. The news means that PTC customers, whichinclude fund managers, hedge funds and commodity tradingadvisors (CTAs), will now be able to trade FX currency pairs on theEBS®TM Spot dealing system, via an EBS Prime bank, with access toexceptional pricing and liquidity.

Jack Jeffery, CEO, EBS said: "TheEBS Prime model is specificallydesigned to maintain therelationship between the banksand their customers. "EBS Primebanks are now able to market theEBS Prime offering to two specificfinancial services segments -smaller and regional banks, andthe PTC." Key findings from theEBS R&D effort were that theprofessional trading communityhas added unique liquidity to theEBS Spot trading community, particularly in the Commonwealthcurrencies, by putting more quotes into the market.

Jack Jeffery

SEB launches FX PrimeBrokerage SEB has announced the launch of their FX Prime Brokerage “FXPB”service, an ancillary clearing product where SEB offers to theirclients a more efficient way of handling their FX Business byexecuting their FX various requirements using the name and creditof SEB. Being an early adopter of FX transaction technology, it wasnatural for SEB to broaden their offerings to their clients with FXPrime Brokerage. Their e-trading platform, Trading Station has beenlive since 1997 and adding FX Prime Brokerage to this solutionmatches the evolution in FX, particularly with the various newleveraged entrants to the marketwho need this product.

“We always look to service ourclients in their various FXprocesses and FXPB is anexcellent product for bringingadditional value added services toour clients when it comes tostreamlining their administrationand better use of collateral orcredit”, says Henrik Dubajic Headof FX Prime Brokerage. Henrik Dubajic

In normal market conditions there is no dealer intervention; the system provides transparent liquidity combined with asophisticated order-management system which can cope withcomplex orders such as contingents, OCOs, stop-loss andGTCs, which can be filled, settled and reported back instantly.

This tried and tested forex trading platform from IFX Marketscan be delivered to clients in three different ways, to provide whatever trading environment the client requires.

The basic method allows clients to trade through the platformdirect with IFX’s dealers, with straight through processing (STP)which can be delivered in a variety of formats from emails,through to file transfer protocol (FTP).

The second method is as a White Label, which is aimed at IBs,FCMs and other client-facing institutions. It is branded with thelogo of the institution. The institution itself is able to dictate itsown spread and commissions with the end-user.

Thirdly, the Application Programming Interface (API) enables athird-party software system to be “plugged-in” at the front-endof the trading platform. Positions can be auto-offset, or theinstitution can use the IFX price engine, just as a feed.

The API can be used in a variety of ways. At its most basic it isa price feed; but it can also be linked to third-party tradingplatforms, multi-bank portals, or automated trading systems(black-box) to name just a few.

IFX can tailor these solutions to each institution, and cansimultaneously offer more than one of them to a single entity.

For further information please contact:

IFX Markets Ltd

One America Square, 17 Crosswall

London EC3N 2LB United Kingdom

Telephone: +44 20 7892 0909 Fax: +44 20 7488 9326

Authorised and regulated by the Financial Services Authority

april 2005 e-FOREX 19Sponsored Statement

Forthcoming event

ForeignExchangeSeminar

This third half-day annual briefing will be held at Pinners Hall,

105 – 108 Old Broad Street, London EC2N 1EX on 14 July, 2005.

Confirmed speakers include:

Conor Maher, Manager, Treasury-EMEA LatAM, Hewlett Packard

Paul Fisher, Head, Foreign Exchange Division, Bank of England

Steve Grossman, Travelex plc

Tom Buschman, Shell Treasury Development Manager, Shell

International

Mark Warms, General Manager Europe, FXall

Sue Mainwaring, Director – Finance & Treasury Tax,

PricewaterhouseCoopers

Mark Baillie, Associate Director, Barclays Capital

Key topics will include:

• What are the main drivers of the FX market today?

• Emerging Markets – policy and procedures for Risk Management

• e-FX – What is the current state of play?

• Update on IAS 39 and UK GAAP Convergence

Panel Sessions will examine:

• CLS

• FX trading documentation

For further information and to download the programme

and booking form please visit:

www.bba.org.uk or email: [email protected]

Tel: 020 7216 8816 Fax: 020 7216 8894


www.treasurers.org www.bba.org.uk

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Organised by:

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Nordea is the leading financial services group in the Nordic and Baltic Sea region. The Nordea Group has more than 10.6 million customers and is a world leader in Internet banking, with 4 million e-customers.

Visit our stand on ACI World CongressStockholm 26 -28 May 2005

Looking forward to the next 50 years of ACILooking forward to thenext 50 years of ACI


Foreword

The year 2005 is an exciting year for ACI,The Financial Market Association, as wecelebrate the founding of our association ofindividual members in the wholesalefinancial markets. Through a continuouseffort we have greatly contributed to thesuccess of the financial markets as we knowthem today. As countries open their marketsto free trading, a wider range of currencieshas become available. New techniqueshave been developed but the starting pointwas foreign exchange and money markets.Forward swaps, IRS, short term futures,options on currencies and interest ratesbecome part of our arsenal of products.

As secured trading becomes the focus withthe introduction of Basle 2 at the end of2007 the traditional unsecured moneymarket will decrease in use. Our traders arebuilding up expertise in secured tradingthrough repo and security lending. Forsmaller operations triparty has greatpotential as a financing tool, already usedby Central Banks for a number of years.Many Central Banks are using tenders toconduct their monetary policy in the formof repo transactions. To keep markets asliquid as necessary a wide range of eligiblecollateral is been discussed at local levelwith the European Central Bank, the Bankof England, the Swiss National Bank butalso on an international level to provideenough payment capacity in a cross-border environment.

With this shift in focus, collateralmanagement will become dominant andwith it liquidity management. Theintroduction of IAS 39, the Sarbanes-OxleyAct tightening up the corporategovernance in the US, the increased focusby CPSS/IOSCO on security settlementstandards and central counterparties areonly part of what treasurers have to lookat. In Europe, CESR the Europeanregulator, is fast catching up and nowadopts all international recommendationsin light of the G-30 and CPSS/IOOSCO intoEuropean Standards.

The European Commission is pursuing theLisbon agenda aiming to make Europe themost competitive financial markets in theworld.

The Russian Federation is looking to opentheir markets, the emerging markets of theFar East are moving ahead and Africa iscertainly trying to catch up. And we all knowChina will become important in the market.

ACI has a place and a duty to work with themembers, the banks, the regulators andcentral banks towards greater use of allproducts in an environment that is as riskfree as possible. We aim to continue tokeep our recommendations to ourmembers up to date with marketdevelopments. The Model Code willremain the backbone for that as it has beenin the past. A team of dedicated volunteersin the Committee for Professionalism (CFP)from all over the world and with a widevariety of expertise will see to that.

Obviously, disputes will happen as theyalways have. However, the speed at whichtransactions take place, in particularthrough the enhanced use of automatictrading systems will open otherchallenges. A workshop will be held duringthe World Congress in Sweden open tovendors and regulators to discuss with theCFP market evolutions and possiblechanges in our best practise Model Code.

With the sheer speed of evolution ofproducts, education remains a challengefor all of us. ACI aims to continue to offerhigh quality exams. However, this mightprove too little. We aim to provide topicalseminars open to our community to informour members of trends in the markets andnew products. Together with the trainingcommunity our challenge will remain tostay abreast of all market innovations. Thisyear we will schedule a number of Basle 2conferences in various centres of the world.

In Europe, the Euribor ACI working groupshave a number of initiatives scheduled forthis year. The launch of the Eonia SwapIndex on June 30th in Frankfurt will see theintroduction of yet another reference rate,similar to Euribor and Eurepo. The STEP(short term European commercial paper)workgroup will host a number of workingsessions in Europe to introduce the STEPlabel to issuers and investors.

In November the 4th professional reposeminar will be held in Europe while a firstsimilar initiative will be held in the Far East.

Throughout the 50 years of its existence,ACI has built up an incredible knowledgethrough it’s membership of the financialmarkets. But above all, friendship is at thebase of our success. In the early days,communications had been rather poor,hence the need to meet yourcounterparties at the yearly congress. Withthe increased use of automatic tradingsystems, this social need has againemerged. Systems, even the best, falldown. The unfortunate events like 9/11have shown the value of knowing yourcounterparty, not only for regulatoryreasons, but also humanly. ACI offers thisunique platform. Very few financialassociations have this family spirit which isso clearly shown in the publication of ouranniversary book “Once a dealer – 50 yearsof ACI….. always a dealer – 50 years ofACI”. If you’d like to obtain a copy of thismemorabilia go to our renewed websitewww.aciforex.com for more information.

Godfried De Vidts

President, ACI

www.fxall.com

FXall didn’t need to reinvent

our process. They just

automated it.”As asset managers, we’ve

developed our own particular way

of handling forex dealing. We were

delighted to discover FXall’s

extensive set of integration tools.

We still have the same workflow –

with QuickOMS, it just works better

and flows faster right through the

trading cycle. It’s given us a vast

improvement in efficiency. And we

get the benefits of best execution

and exceptional liquidity.

“


Daily FX trading volumes are at well-documented all time

highs driven by a host of factors including:

• a trend increase in cross border investing

• a trend increase in international trade

• tighter bid/ask spreads

• greater price transparency

• significant numbers of new entrants including hedgers and

retail/institutional speculators

So regulators are understandably more sensitive to the

market's ability to operate smoothly under a variety of

conditions. There are two key questions to consider: What

exactly is "liquidity"? Who provides it?

A good working definition of liquidity is "the quantity of an

asset or commodity available to be traded at a given price at a

given point in time". Many markets, including FX, have a well-

developed infrastructure comprised of:

market takers - those who periodically have a

commercial, hedging-related or speculative need to

execute an FX transaction on one side of the market.

market makers - those who continuously, or nearly so,

proactively broadcast ... or passively respond to requests

for ... both a bid AND offer, qualified by a quantity.

There are two important differences between these actors: 1)

periodic versus more regular participation in the price

discovery process and 2) the need to participate on one side of

the market versus the willingness to routinely participate on

both sides of the market.

Risk transfer

The key concept here is risk transfer. Market makers' job is to

behave as liquidity providers of last resort. Their willingness

to make a price and execute a trade at someone else's

initiation is directly proportional to their expected

compensation for managing the risk transferred to them.

Market makers' compensation derives from their expected

ability to capture a portion of the bid/ask spread. That's a

mouthful, but it basically means market makers have no

appetite for "return-free risk".

A market maker's role is similar to that played by a car dealer

who pays you an agreed price for your trade-in, adds your car

to their inventory and works to sell that car at a price high

enough to justify the capital used to buy the car, the cost of

marketing/selling the car, etc. Risk transfer must include "a

little something for the effort" otherwise there is limited

incentive to manage someone else's risk, if only for a few

minutes or hours. Banks' compensation for managing risk

transferred to them fully depends on their ability to offset

positions in a timely, cost-effective manner. The question of

whether liquidity is under-priced is partly a question about

trading efficiency. The more efficient a bank is (eg, the greater

its ability to capture a portion of the bid/ask spread) the higher

its compensation for providing liquidity at a given price. The

costs a market maker incurs to access transactions over an

ECN clearly take a significant bite out of this compensation.

So do markets really need market makers? Is a hedge fund's

bid on an ECN a demand for or a supply of liquidity? Why

can't buyers and sellers simply meet and swap their respective

risk, reducing costs and cutting out the middleman?

The debate surrounding the general topic of FX liquidity is heating

up. This is understandably a focus among regulators who want to

better understand and monitor "systemic risk". They are openly

curious about how recent FX market trends (increased propensity of

participants to trade electronically, increased number of electronic

channels for sourcing liquidity, concentration of market share

among the top 10-15 global liquidity providers, the burgeoning

number of electronic marketplaces or "ECNs" ... to name a few)

might affect liquidity during times of market stress like we saw in the

Autumn of 1998 or during the ERM crisis of the early 1990's.

Underpricing Liquidity -ePlatforms Increasing Systemic Risk

Ed Pla - Managing Director,UBS Investment Bank

L E A D E R


>>>

“The key concept here is risk transfer. Market makers' job is to behave as liquidity providers of last resort.

Their willingness to make a price and execute a trade at someone else's initiation is directly proportional to their expected compensation for managing the risk transferred to them”


Underpricing Liquidity - ePlatforms Increasing Systemic Risk

The answer relates to participants' varying utilities with respect

to time. Market makers give participants the option of trading

when they want to ... on THEIR schedule ... not when they want

to AND when someone else wants to. Through their

willingness to warehouse risk and offset it over time, market

makers provide the lubricant that allows markets to run

smoothly. Additionally competition among market makers

ensures that markets have tight boundaries. This boundary

setting is a core building block of the price discovery process.

Successful risk transfer requires a market maker, as the receiving

party, to have sufficient outlets available to distribute that risk.

This is done most cost efficiently internally ... the best way to

offset a client's purchase of 2 million Euros is with another

client's simultaneous sale of 2 million Euros.

While this perfect scenario is rare it's more

likely the greater a bank's market share.

The narrowing of spreads

witnessed in recent years (due

in part to the greater

transparency associated with

electronic trading) makes it

more critical than ever for

market makers to leverage

these kinds of efficiencies in

order to maximize positive

expected value with low

variance. Which is exactly

why "liquidity" has become

concentrated in fewer hands... in

order for wholesale risk taking to be

profitable, a financial institution needs

sufficient critical mass of non-correlated

client volume plus a rich order book to create cost

efficient means for offsetting risk.

Increasingly, smaller financial institutions are focusing on sales-

centric business growth strategies (client acquisition and new

products) at the expense of "risk wholesaling" or trading

strategies. This is rational given the need for scale-related

trading efficiency and the ease with which liquidity can be

sourced electronically from wholesale banks. It's a classic case

of "buy versus build" favoring "buy" because the purchase price

is low. The wholesale banks support this in order to maximize

the order flow and transaction volumes required to remain

profitable market makers. These are true symbiotic

relationships. Is this liquidity being under-priced? Not if the

incremental transaction volumes contribute meaningfully to a

pool of liquidity the provider bank can leverage to offset risk.

Electronic trading

Electronic trading in general and ECNs in particular have

muddied the waters a bit. Most electronic marketplaces put

restrictions on their liquidity providers such that they are

prevented from trading with each other. And yet those banks

can find themselves making prices to a counterparty that in turn

stands alongside them on an ECN as a market maker. Is the

liquidity provided by wholesale banks on these channels

underpriced? More specifically, do bid/ask spreads accurately

represent the cost of market making and the expected

compensation for participating in a liquidity auction? It is quite

possible the liquidity provided over these channels is under-

priced in the sense that 1) contributed spreads must be

extremely tight to be competitive and 2) banks must pay to

provide prices over these channels yet the market structure

allows that same liquidity to be simultaneously re-

sold over the same channel by some of the

liquidity consumers. Over the last few

years the land grab in electronic trading

combined with the need for scale

has contributed to this dynamic.

However the cost/benefit trade-off

for banks may now be at a point

where we see more introspection

(eg, more focus on MIS) and a

bit more selectivity among the

wholesale market making

community.

In short the ECNs, by allowing a

portion of its price providers to

maintain a dual identity (price taker

and price maker) have created the

potential for an overstatement of

aggregate liquidity. This illusory oversupply

has likely accelerated margin compression,

resulting in a circular process of spread contraction and

need for scale that is likely unsustainable. This has not yet

manifested itself as a problem as markets have been relatively

orderly these last 1-3 years. It will be interesting to see whether

systemic shortcomings are laid bare in a higher volatility

environment.

The electronic trading trends that have established themselves

in the last 3-5 years are unlikely to reverse. The benefits in

terms of price transparency, lower cost and greater efficiency

are significant and increasing. However it is likely the FX

industry's methods and tools for managing and distributing

liquidity will be required areas for investment in the coming

years. There is a need to more carefully monitor not only what

amount of liquidity is provided but to whom it is provided and

the return for providing it in order for banks to contribute to a

fair representation of aggregate liquidity.

L E A D E R

To organise a demo please contact Gabor KORMOS or Franck MIKULECZ.

BAXTER-Solutions Kft.1075 Károly krt. 1.Budapest, Hungary

phone: +36 (1) 235 06 87e-Mail: [email protected]

BAXTER-Solutions LLC2116 3rd StreetSanta Monica, CA 90405USA

phone: +1 (310) 399 00 93

BAXTER Financial Services Ltd.Dublin Exchange FacilityIFSC, Dublin 1Ireland

phone: +353 (1) 670 04 55

The TrackWheel®:An efficient visual interface for

traders to quickly and intuitivelyadapt their pricing in real time.

"Skew" commands are sent to theserver side, allowing to integrate

the Dealer's knowledge in the PriceStream.

The SNMP Tool:The SNMP tool provides a clear

and immediate diagnostic toolfor the first level support team.Java Exceptions appear in themessage window in case of aproblem on any component.

Support can pin point problemsand trouble shoot efficiently.

Price Feed:A proprietary UDP based pricedisplay tool can be used for Spotand Forwards prices to displayrates contributed anywhere onthe LAN. Sales and managementcan see Rates contributed at alltimes.

Alternatively please call a member of our professional technical sales teams in the following offices:


Electronic foreign exchange trading volume has doubled in

each of the past two years, but new research from Greenwich

Associates suggests that current growth rates could appear

modest if the consortium of banks supporting the main

interbank FX trading system holds together through its

planned expansion into the wider market.

For the past several years, the FX market has been bifurcated

between enthusiastic electronic traders and those that refrain

from eFX completely. Most FX users that have not yet traded

electronically tell Greenwich that they simply see no

compelling reason to change the way they trade. However, the

cost-benefit calculations of these FX holdouts could change

radically if the EBS Prime trading system is able to overcome

hurdles (such as the recent decision of Deutsche Bank to opt

out of project) and successfully extend its service to the

FX buyside.

In its current incarnation, many FX users see the benefits of e-

trading as simply not worth the risk of losing direct contact

with salespeople from whom they receive market color and

other valuable information. In addition, some users do not feel

that the benefits of e-trading outweigh the costs of getting

started with the technology. But that analysis could change

dramatically if suddenly users were granted access to an

electronic system that provides enhanced liquidity, and

tighter spreads.

Nearing the Tipping Point:Could the Expansion ofEBS Prime Unleash a NewPhase of e-Forex Growth?

Peter D’Amario is aconsultant with Greenwich

Associates


>>>Of course, there are no guarantees that EBS Prime will be able

to deliver on these promised benefits — even if it can convince

its bank supporters to remain committed to an expansion that

might erode their own margins by making wholesale prices

available to the general universe of FX traders. However,

Greenwich Associates research suggests that the establishment

of a centralized, market-wide trading system could overcome

one of the main impediments to eFX growth: the lack of a

universal STP solution.

Already, one-in-three eFX users cite STP as one of the key

benefits of electronic trading, and nearly the same proportion

point to the reduction in trade errors as an important eFX

feature. However, electronic trading systems as presently

constructed do not easily facilitate STP from the perspective of

FX customers. Full back-office integration between a company

and its FX bank still requires a significant investment of time

and money, and once a company has made that commitment,

it is in effect, married to that dealer or system unless it’s

prepared to duplicate the process with additional banks or

trading platforms.

It is in this respect that the expansion of EBS Prime, or the

establishment of another centralized trading platform, holds the

potential to unleash a new wave of eFX growth. If customers

can achieve STP by integrating their systems with a single

platform to which the supporting banks conform — and which

incidentally offers better pricing and more liquidity — the

benefits of electronic trading will eventually compel many of

today’s eFX detractors to log on. It is this creation of a single

common platform, eliminating the need to create multiple STP

solutions for multiple platforms, that will reduce this particular

barrier to entry.

eFX Growth

Even without such a central system, electronic foreign

exchange is growing at a pace far exceeding that of global FX

trading as a whole. Overall FX volume grew by about 25% from

2003 to 2004, with much of this growth attributable to cyclical

market factors including U.S. dollar fluctuations, global political

uncertainties and rising commodities prices. Growing corporate

FX activity and the active trading of a new class of

“professional” FX investors — including hedge funds and

“customer” banks — are also serving to inflate foreign

exchange trading volumes.

eFX growth rates in 2004 easily topped this market-wide

expansion, with electronic volume more than doubling from $7

trillion in 2003 to almost $16 trillion in 2004 among foreign

exchange customers interviewed by Greenwich Associates in

late 2004 as part of the firm’s annual global FX research. In

particular, sharp increases in bank e-trading volumes helped

drive the growth: Globally, increased FX volume on the part of

banks accounted for more than $6 trillion of the total increase.

Across the market, most of the increases in electronic trade

volume in 2004 came from companies and institutions already

trading electronically. Existing eFX users increased the

proportion of their total trade volume executed electronically

from 43% in 2003 to 48% in 2004. In the United States, eFX users

now direct more than half of their total FX trade volume through

electronic systems. Electronic traders in Europe executed just

less than 50% of their volume online in 2004, and eFX users in

the Asia/Pacific region directed 43% of their volume to

electronic systems.

Global eFX volumes also benefited from the entry of new users

over the past 12 months. The proportion of FX users executing

some portion of their foreign exchange trades electronically

increased from 39% in 2003 to 44% in 2004, with financial

institutions leading the charge. Seventy percent of banks traded

electronically in 2004, as compared with 62% the prior year, and

the proportion of asset managers trading electronically

increased from 37% to 42%. The proportion of hedge funds

trading FX electronically increased from 36% in 2003 to almost

50% in 2004.

Despite the addition of these newcomers, a sizable portion of

the FX market remains resistant to the allures of e-trading.

While the proportion of FX trading institutions reporting to

Greenwich that they have no intentions of trading electronically

in the next 12 months fell slightly from 2003 to 2004, it still

stands at 42% of the market. A full 48% of corporates, which in

general have lower average trading volumes than other FX

users, still say they have no plans to trade FX electronically.

The world’s largest FX users are also the most likely to trade

electronically. Fifty-eight percent of FX users with foreign

exchange trading volumes in excess of $10 billion traded

electronically in 2004, as compared with less than 50% in 2003.

At the same time, electronic trading usage among mid-size FX

traders was stable about 35%, and usage among smaller

companies and institutions increased from 21% in 2003 to 28%

in 2004.


Nearing the Tipping Point:Could the Expansion of EBS Prime Unleash a New Phase of e-Forex Growth?

FX users in the United States and continental Europe lead the

world in terms of eFX adoption, with 55% of all FX institutions

in the United States trading online, and 52% of Continental

institutions trading electronically. Forty seven percent of U.K.

FX traders used eFX in 2004. At the other end of the adoption

spectrum, only 21% of Canadian institutions traded

electronically in 2004, as did only 27% of Japanese FX traders

and one in three traders elsewhere in Asia.

Electronic Trading: Benefits and Needs

To date, electronic trading’s biggest draw has been its speed,

efficiency and convenience, as opposed to better pricing. When

asked by Greenwich Associates to name the benefits that they

have realized from trading electronically, 65% of eFX users cite

faster executions and almost 60% note convenience, efficiency

and increased productivity. Companies and institutions with FX

trading volumes under $1 billion seem especially interested

in the efficiency and productivity gains delivered by

electronic trading, since professionals at smaller companies

and institutions often have multiple responsibilities, as

opposed to those at larger FX users, which generally have

dedicated staffing.

Only 34% of electronic traders name tighter spreads as a central

benefit of electronic trading — a finding that suggests

significant opportunity for EBS Prime and its wholesale pricing.

One possible explanation as to why spreads on electronic

trades have not compressed further than they have is the

continued popularity of single-bank trading systems, which lack

the price discovery mechanism of many multi-bank platforms,

and the notion that multiple multi-dealer sites tend to disperse

liquidity across multiple platforms rather than collect it in one

large pool. There is no consistent sign that multi-dealer

platforms have stopped multiplying, with Reuters now

attempting to move into the customer space.

In electronic FX, the proportion of traders using single-bank or

proprietary systems actually increased from 45% in 2003 to 51%

in 2004, and the proportion of eFX traders using both single-

bank and multi-bank systems grew from 12% to 17%.

The single-bank systems continue to find success despite the

fact that — due in large part to the deeper liquidity of the multi-

bank platforms — multi-bank systems outscore proprietary

platforms on customer satisfaction scores. This resilience on

the part of proprietary systems can be attributed in some

measure to customers’ desires to access FX research

electronically and the continued importance of credit

relationships in awarding FX business. However, FX customers

also have needs — such as their need to trade through their

own bank’s accounts as opposed to a clearing system — that

are distinct from those in of traders in markets like fixed income,

in which multi-bank platforms have achieved a near monopoly

on electronic trading.

A Redefinition in e-Forex

In many respects, FX customers’ unique needs serve to explain

why the eFX market has yet to witness long-predicted

consolidation, and why, by contrast, the ranks of electronic

trading service providers continue to expand. What we are now

witnessing in the market can best be termed a redefinition, as

opposed to consolidation, as new providers customize their

business models to serve segmented markets such as hedge

funds and retail customers.

It remains to be seen if the business models of the market’s

niche providers — or even those of the larger, mainstream

providers — will be strong enough to withstand the expansion

of EBS Prime, assuming the company is able to convince its

bank consortium to continue to provide liquidity to the system

in return for what will amount to credit charges. Already some

smaller competitors that targeted middle-market FX users have

found that success in the niche market is largely dependent in

finding a niche that produces sufficient trade volume to support

their business. If the inter-bank system is able to execute its

expansion plans, its extension into the customer side of the

business will have profound implications for these service

providers, and indeed for FX as a whole.

While EBS Prime is some way from establishing itself as a true

buy-side system, the implications of its possible success in the

venture cannot be overstated. Through its wholesale pricing

and liquidity, the system could potentially attract enough users

to position itself as a centralized platform for electronic foreign

exchange trading. Centralization in turn could open the door to

an STP solution that facilitates easier integration of company

systems with those of multiple FX banks. If such an STP system

were to emerge, Greenwich Associates would expect to see

many FX users that currently do not trade electronically adopt

eFX, setting the stage for explosive growth in electronic trading

volumes, and possibly starting in motion the long-awaited bout

of consolidation among eFX providers.

Greenwich Associates conducted in-person interviews with 1,436

users of foreign exchange services at large corporations and

financial institutions on market trends and their relationships

with their dealers. Interviews were conducted in North America,

Europe, and Asia between September and December, 2004.


While almost 50 percent of institutions claim to have no interest

in electronic trading, this attitude simply cannot persist. It is true

that certain financial products are not ready to be traded

electronically (e.g., complex credit derivatives, non-standardized

interest rate derivatives), but forex is not one of them. Forex is

standardized, incredibly liquid, and for at least the next few years,

mostly traded on a non-speculative basis (so institutions want to

trade as cheaply and easily as possible).

Inter-dealer e-trading

Celent estimates that 60 percent of inter-dealer trading is done

electronically, and predicts this will increase to 90 percent of

trading by 2007, for several reasons. The inter-dealer e-trading

platforms are growing bigger and more liquid over time, which

should attract trading interest from banks that are conducting

their largest trades over the phone.

Second, banks that trade over the phone do so for several

reasons. For example, they may be looking to trade odd lots or

broken dates, which they cannot do electronically, or they may

want to trade anonymously. It is conceivable that the dominant

electronic platforms will add this functionality to steal more

volume from the inter-dealer brokers. Even if they do not, a new

entrant in the inter-dealer market, eSpeed, provides mixed lot and

anonymous trading. This should draw volume away from the

non-electronic side of the market.

Dealer-to-client e-trading

Celent also predicts that electronic trading in the dealer-to-client

market will increase from 43 percent in 2004 to 70 percent in

2007. This growth will come from several sources. The fastest-

growing segments of forex trading by institutions are hedge

funds and CTAs, which happen to be the segments with the

highest adoption of, and most comfort with, electronic trading.

As forex trading volumes for all types of institutions increases,

the benefits of electronic trading will increase as well (e.g.,

automation, efficiency, speed). Greater adoption will also come

from greater standardization of forex technology through

industry initiatives like CLS and FIX, which will make it easier for

institutions trading by voice to connect to one or many electronic

platforms. Also, pre-and post-trade support from these platforms

is improving, which should attract interest from new customers.

Multi-dealer platform community

The multi-dealer platform community is an interesting study ofcompetition. Whenever multiple trading platforms exist to servea single market (regardless of the asset class), the industry lovesto speculate on what the “right” number of platforms is, andwhether platforms will consolidate. In fact, when the niche playerand bank-owned Centradia platform shut down last month,leaders of the remaining platforms speculated that certain otherplatforms had a limited future. In the same breath, theyhighlighted why their respective platforms were different fromCentradia and were in a strong position to succeed. Contrary toindustry opinion, Celent believes that there is room for all theexisting platforms, for two reasons.

First, the market, in terms of trading volumes, is growing soquickly that each platform could make no in-roads in its currentmarket share but still grow fast enough to increase profits and besustainable. But even more important is that less than half ofdealer-to-client forex volume is traded electronically today. Theinevitable increase in that percentage provides the majority of thegrowth potential for the multi-dealer platforms. Second, eachplatform (with the exception of FXall) is targeting a specific typeof customer within the buy-side, so there is not as much head-to-head competition as in other markets, such as equities. FXConnect is uniquely positioned to serve asset managers, Hotspothas specialized in serving hedge funds and CTAs, and 360T hasdominated among Central European corporate treasurers. Forthese reasons, Celent believes there is room for all the existingplatforms in this market.

Inter-dealer platform community

The interbank trading platforms operate in a different competitiveenvironment. While Reuters and EBS have strong positions with thebank community, there is little difference between the two. It is notunimaginable that these two platforms could merge and combinetheir strengths in complementing currency pairs, although it isunlikely in the short term. Further, the interbank market is becomingmore bifurcated, where the large banks contribute price discoveryand liquidity to the electronic platforms, while the small banks actlike buy-side customers in the dealer-to-client platforms, removingliquidity but only nominally providing it. As this market becomesmore segmented, new platforms will be launched to cater to banksoutside of the top 100. We expect to see some consolidation in thismarket as some platforms are closed for lack of interest and othersmerge in order to remain liquid and viable.

Jodi Burns is a senior analyst is the Securities & Investments practice at Celent Communications.

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We’re also seeing technological advances supporting and, in

some cases, driving market demand. Technical innovations like

program trading are attracting heightened interest as traders

seek to shave milliseconds from execution times. Prime

brokerage and access to liquidity via in-sourcing and/or

outsourcing are taking centre stage. Integrated order

management systems are becoming an ever more critical

component in enabling a bank to better manage its increasing

risk and exposure. As we enter a new era of technology, banks

are now faced with a new set of decisions that will

have significant impact on their future position in the

marketplace. Here’s a look at how the e-commerce shopping

basket is changing.

Automated Pricing

If the first generation of e-commerce trading technology was

largely focused around distribution, it is safe to say that we

have now entered the era of the pricing engine. We are

witnessing a call to arms in the form of sophisticated, electronic

pricing engines.

Clients are becoming more demanding, with many seeking

streaming, deal-able prices or “one-click” trading. The

functionality, previously only available to top tier banks through

heavy investment in internal development, is now commercially

available to anyone in the marketplace via vendors such as

Reuters.

Client Applet with One Click Trading and

Lightweight Deal Blotter

Pricing engines are no longer the black boxes that they have

been in the past. They are highly flexible and rich in

functionality, offering customized interfaces that allow dealers

to maintain a “hands on” control over all rates being distributed

by the engine.

They allow dealers to easily modify prices by using graphical

controls to narrow or widen spreads or to skew prices to one

side. Traders can pre-define market condition or “volatility”

settings that can have different spreads associated with them

and can be activated for single or multiple currencies via a click

of a button or by trader defined rules.

In a market that is notorious for remaining constantwe have seen unparalleled change over the lastcouple of years. Multi bank portals continue tocome and go and hedge funds and other buy-sideparticipants have caused a blurring of the linebetween buy and sell side.

How the FX e-commerceshopping basket is changing

By Mark Redwood, Managing Director, Reuters Automated Dealing Technologies


>>>

Trader Rate Management (TRM) Screen

Dealers can now also source rate feeds via multiple rate

providers and can define algorithms to determine best price or

differentiate based on criteria such as geography or time of day.

Feed sources go beyond Reuters or EBS and can now include

feeds directly sourced from other banks. In addition, routing

rules can be associated with feed sources.

For example, a trader can define a rule that determines when a

particular bank feed is being subscribed to, any external client

price request in that currency will be automatically

“outsourced” to the bank providing the feed. We’ll discuss this

further in the next section.

Connectivity: Liquidity choices, white labelling and access to

multiple distribution channels.

Although we may have entered the era of the pricing engine,

access to distribution is still a must have when offering an

electronic trading service. One of the main challenges facing

many banks is not what portals to participate in - those

decisions are largely customer driven. It is the ever challenging

search for liquidity. However, today’s e-commerce software

provides banks many options.

For the smallest banks, white labelling provides a ready-made

solution that enables them to provide a branded trading system

to their clients. Bank provided white label systems generally

require committed volume levels or sometimes even 100%

outsourcing. However, there are attractive alternatives available.

Vendor provided systems allow banks to selectively manage

order flow based on the business decisions of the bank. The

key to success in this model is electronic access to a

“community” of banks filled with both price makers and takers.

A community should consist of large banks willing to provide

access to liquidity across multiple currency pairs as well as

across time zones, regional specialists who make markets in

specific currencies and others who want to have the ability to

selectively manage their liquidity requirements as their

business evolves. Some banks may decide to make markets

during local business hours but outsource in the evening; make

markets in certain currency pairs while outsourcing others;

maintain access to numerous trading partners to ensure

quality pricing with the ability to change their trading model

day by day or minute by minute. This model gives a bank the

flexibility they require as business conditions change whilst

allowing them to maintain their independence and enabling

them to focus directly on their customers.

Integrated Order Management

As electronic transaction volumes increase it is imperative that

banks maintain a consistent view of their exposure, including

their order book. An integrated order management platform

enables a bank do this. It allows the banks clients to leave

single and multi leg orders via the same tools that enable them

to trade immediately. It allows a bank to view a real time mark

to market via the same consistent pricing mechanism that

feeds their electronic trades. They can manage their orders via

a traditional method of manual execution and physical passing

of a book across time zones or by embracing their technology

platform, letting their pricing and rules engines determine how

to handle their orders; auto execute certain orders while

routing others to dealers for manual pricing based on flexible

rules created by the traders. Integrated order management

platforms provide banks with numerous benefits including

decreased operational risk and better adherence to the ever

tightening standards of corporate governance.

Branch Automation

For many banks, the benefits of automated dealing are about

much more than electronically executing hundreds or

thousands of client orders everyday. As banks continue to seek

greater ROI in technology this often means addressing

the requirements of a banks clients that may have

historically been seen as a cash management clients as

opposed to trading clients.

More banks are now using their e-commerce platform to

service the needs of their financial advisors, private bankers,

branch office personnel and the clients that these employees

support. The requirements of these users differ widely from

those seen as more active traders, and a single e-commerce

platform needs to be flexible enough to support them both.

This includes capabilities for salespersons and branch staff to

trade “on behalf of” their clients, including everyone from high

net worth individuals, small corporations, and walk up traffic at

a bank branch. Services may be more focused on automating

wires and/or payments as opposed to high volume trading, by

interfacing automated pricing engines to bank's legacy

payment systems in order to provide consistent pricing and

customer monitoring. Providing a simplified client experience

is more important than delivering streaming dealable prices. In

a world where banks serve a very diverse client base their e-

commerce platform needs to be flexible enough to meet the

needs of all their customers.

Conclusion

We are truly seeing the beginning of a new generation. Many

banks are revisiting their original e-commerce choices and are

now better equipped to make longer term technology

decisions. They need robust price making capabilities, access

to ever changing distribution channels and flexibility to

support their evolving business model. Access to community,

whether you are a price maker, price taker or a combination

thereof, is critical. Vendor hosted solutions can now provide

many banks with alternatives that would not have previously

been within their reach enabling them to remain both

competitive and customer focused.

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One Stop Shop

The Global FX business is a mature market. A substantial level

of automation and the subsequent price transparency have led

to ever-thinning margins for the sell side. Combined with

improved liquidity, the influence of price has diminished, and

the FX providers, desperate for volume, are aware that business

is increasingly won by offering value-added services.

E-commerce has a big role to play in this strategy.

Fortunately for the FX providers, there remain significant

market entry barriers to the high-scale FX market place.

Standard minimum volumes of €1M as well as processing

requirements like CLS present hurdles for corporate treasurers

which many can rarely overcome, thereby limiting their access

to advantageous Interbank rates.

In order to improve client retention, thereby countering market

transparency and simplified market access, FX providers have

started to extend their service offering both horizontally, by

including value-added services, and vertically, by extending the

scope of financial instruments being covered by these services.

This has become possible principally because e-trading has

matured and technology has progressed - widening the choices

available to corporate treasurers.

Three main areas of services can be identified:

• Domain services that extend the service offering of FX

providers with the intention of limiting their client access to

the FX marketplace to their own products and services.

• Domain markets that are targeted at well-defined market

segments in an attempt to tie clients to a service by providing

access to near-market rates without imposing the market

entry barriers mentioned above.

• Public markets that provide near-bank prices and services by

maintaining a high market transparency with a number of

different banks offering competing prices.

An example of the latter is the increasing number of prime-

brokerage infrastructures, where a number of potential prime

brokers have combined forces to offer FX services to a target

community. Usually the margins in such environments are very

small, with turnover generated through add-on services

surrounding the processing of the resulting transactions rather

than from the transactions themselves.

These services have one thing in common: they require state-

of-the-art technology to be provided in such a way that clients

can use these services regardless of their internal

infrastructures and networking environments. The most

prominent example for such services is the growing number of

Web Portals providing predominantly FX price discovery and

semi-automated FX trading. These marketplaces, as well as the

banks’ own proprietary solutions, provide the corporate

treasurer with an instant market price and the ability to instantly

execute a transaction either through the RFQ (request for quote

mechanism) or using ESP (executable streaming prices).

For the corporate treasurer, e-commerce is rapidly moving

towards providing a holistic set of products and services and is

no longer limited to just Foreign Exchange price discovery and

execution. Significant improvements in the technology and

functionality of Web systems and the added value they provide

means that corporate treasurers can significantly improve

operational efficiency, liquidity and bottom line profitability. The

e-commerce solutions now available can greatly assist this

process by providing the necessary tools, in a safe and secure

on-line environment.

FX e-Commerce & beyond –Providing Treasurers with morethan just execution tools

David Mallinder,Head of Business

Development & Sales atEurobase Banking Solutions


>>>However, until now, the product coverage available within e-Trading

systems and the associated ‘value add’ functionality has been

limited. As competition to attract revenue via e-Trading within the

sell side community becomes more intense, a number of banks have

been looking at providing an e-platform to customers and branches

that can provide far more than just FX price discovery and execution.

Ideally, such a system should be highly user-friendly, creating a

'one-stop shop’ for all the different products. This will entice

treasuries to go on-line and stay on-line for all stages of the trade

cycle, i.e. research, price discovery, deal execution, settlement and

post-deal analysis. ‘Intelligence’ technology, defaulting relevant

pages and information accordingly to customer ‘profile’ and ease of

configuration can all simplify the use of such a system, allowing

treasuries to have a higher comfort level with using the system.

Equally important, of course, is the ease of integration with the

corporate treasury’s existing systems so that data is easily

transferable in real-time to facilitate straight-through-processing

and to minimize market and counterparty risk.

Only recently, one such bank has launched a new web system aimed

at its customers and branches. This system provides flexible

trading and order management across a variety of different

products spanning FX (including emerging markets), MM and

Derivatives. Customers access the system via the bank's corporate

portal and may view live executable prices for a number of different

financial products, all of which are immediately tradeable via a click

& trade mechanism. These live rates cover all currencies and

instruments traded by the bank, each adjusted with a client-specific

mark-up where applicable. This has become possible owing to the

tight integration of the internal trading environment with the rather

externally oriented e-platform provided for the clients.

By relying on de facto standards for modelling the resulting

transactions, namely the use of XML and middleware components,

seamless integration into both the bank’s internal position-keeping

systems as well as the clients’ processing infrastructures has

been ensured.

As with current real-time trading systems, the e-system displays

streaming executable rates based upon customer profile, the type of

product being traded, and the requested notional. These are based

upon core rates, which originate from the bank’s global rates

engine, which provides sanity checking, spreading and market

management for all currency pairs traded. Such core rates are all

provided with a time-out period for execution, dependent on market

volatility, dealer intervention and pre-settings configured for

mitigating market risk. Credit checking is automated by integration

with the bank's credit and limit system. Furthermore, trade

processing is performed by transferring all resulting transactions

into the bank’s core trading infrastructure, thereby ensuring a fully

managed trading position. By implementing a web interface using a

component-based approach on top of a standard FX and MM

trading system, the bank has maintained a high level of flexibility for

introducing new products and derivatives without the need to

change the entire system architecture.


FX-e Commerce & beyond – Providing Treasurers with more than just execution tools

Functionality and Flexibility remain paramount for

Corporate Treasuries

Corporate treasurers can now have access to an extensivetoolkit of treasury management strategies which allow thepractical adoption of most of the sophisticatedmethodologies previously considered too academic,esoteric or only applying to the realms of investmentbanking. There is now an array of options available tomitigate exposure to treasury risk and running costsincurred in trading or hedging positions. This evolution hasbeen primarily facilitated by technology innovations thathave pushed e-commerce to the forefront of most oftoday’s treasury activities and forms part of an ever-more-common business model.

The flexibility now available to treasurers through the useof e-commerce ranges from some of the more traditionalbudgetary aspects such as ‘slippage reduction’ (where theaccess to electronic exchanges, portals, etc. significantlyincreases the quality of market data and in turn allows fora more expansive approach) to benchmarking, coupledwith realistic fine tuning of rates, thereby enhancing theuse of execution tools.

An effective benchmarking strategy can help reduce bid-offer spreads and, dependent upon volumes, can make asignificant contribution to reducing trading costs. As alogical extension the growth in e-commerce has spawneda market in crossing orders, with participants reducing thetransaction costs, most notably in the less liquidcurrencies, by matching transactions and negatingexposure to the bid-offer spreads. In parallel, there is nowan extensive range of risk management tools availableover the internet, with extensive cover both in terms of therange of products and the number of solutions offered.These range from the more basic concepts such as VaR andback-testing flow analytics, through to the moresophisticated modelling tools. This means that, whether aone-stop shop approach is adopted or a portfolio of best ofbreed solutions is employed, the corporate treasurer has at his disposal a sophisticated armoury of solutions for identifying and managing his exposure across the asset classes.

In conjunction with the business drivers, there have beenmajor regulatory demands such as the adoption of IFRS,with the focus primarily on IAS 39. Here again there is avariety of internet-based solutions that accommodates allshapes and sizes, but very much with the corporatetreasurer in mind. As with trading and risk solutions, it ispossible to obtain a comprehensive solution that matchesrequirements in terms of flexibility, volumes, productcoverage and degree of sophistication. This iscomplemented by speed and ease of adoption, with little of the heartache experienced with traditionalimplementations.

Treasurers can process individual hedge clusters or runextensive portfolios dependent on their specific needs,with all of the regulatory requirements addressed in termsof fair value hedge accounting, plus the associateddocumentation, disclosure, etc.

As a by-product of the varied interpretations of regulatory

initiatives and the increased demands for good corporate

governance (not least as a result of Sarbanes Oxley), there

has been an upsurge of interest in the centralised treasury

model and the implementation of the ‘in-house bank’. This

results from a need to improve controls and reduce

operational risks, but also offers business benefits through

economy of scale, improved cash management, netting,

decreased volatility, reduced country exposure etc and

ultimately can lead to a reduction in transaction costs.

However these business benefits are only available to

corporate treasurers as a result of the e-commerce

initiatives of the last few years. Without the flexibility and

reduced cost of ownership on offer through the

Internet, whether it be hosted solutions, portals of

exchanges, the more sophisticated treasury and risk

management strategies would be prohibitively expensive

for most corporates.

Integration is the key

For a corporate to fully maximise the efficiencies of e-

Trading, it is essential that there be seamless integration

between existing treasury management systems and the

portals used. With the development of XML-based real-

time interfaces, reliable and relatively low-cost connections

can be established between systems with different

strengths in functionality. As a result, companies can

realise efficient system support for their varying operations

by implementing a limited set of well-designed interfaces.

This avoids the eternal search for one system that covers

all functionality needs for a longer period of time and its

corresponding costly implementation. Both companies and

their banks have an interest in realising low-cost

integration across organisational boundaries to achieve

better trade execution, settlement and controls.

The Future

It is the natural evolution within the financial markets that

technology and functionality is adopted first by the

Interbank and core trading market before finding its way to

the corporate community. This was true of the FX markets

where banks were trading in a transparent ‘live’

marketplace years before the introduction of auto-trading

was extended to the corporate community. Web-based

fully-functional multi-product auto-trading has arrived. The

corporate treasurer via one point of access can view market

information, view live prices for the different asset classes,

manage orders, execute transactions at the click of a

mouse button, monitor the trade via trade lists and reports

and with seamless integration view the trade instantly in

their existing treasury management systems. With flexible

web technology, the banks are now able to react to

customer demand and add more functionality to support

the treasurer. Increased price transparency and liquidity for

all traded products, instant trade execution, better

management and control of risk and exposures, significant

reductions in trade processing costs, improved audit

trail…… the benefits of on-line trading and analysis to the

corporate treasurer are now far too great to be ignored.

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Case S

tudy

e-Forex C

ase S

tudy

e-Forex C

ase S

tudy

Gentlemen, you have recently undertaken work to further integrate

and automate your treasury operations with a view to providing

improved STP for your group treasury business. What factors played

a role in that decision?

B.H.: At Heidelberger Druckmaschinen AG we are working on a

continuous streamlining of treasury process integration and

automation. Our aim is to run a lean operation with high levels of

efficiency and low risk. Having achieved this to a great extent by fine

tuning our SAP Treasury Management System, we were then

looking to leverage STP by executing and capturing most of our

daily flow business in electronic format. Since Q4 2004, we have

been trading electronically via 360T’s Multibank Portal TEX.

Executed trades on 360T are seamlessly processed into SAP in real-

time since early 2005.

e-Forex talks with BerndHampele, Senior ProjectManager, and BerndBublies, Head of FrontOffice, at Heidelberg-based HeidelbergerDruckmaschinen AGabout automation and e-trading in their group-wide treasury operation.



Does Centralisation play

a role in your treasury

organisation and, if so,

how can this be reflected

by your e-strategy?

B.H.: We have started

centralising our treasury

operations in 1998. The

benefits from it are clear

cut, ranging from scale

and netting effects in our

group’s interaction with relationship banks, to a real-time

consolidated cash position and quality assurance via centralised

service and advisory function, to name only a few. With it comes

the role of the group treasury as an in-house bank for hedge and

funding requests from our global subsidiaries.

We are currently rolling out 360T’s intra-group trading platform

I-TEX to our frequently trading subsidiaries and provide to them

a professional 24h FX and MM trading service under

HEIDELBERG name and logo. Resulting internal electronic tickets

are automatically updated in SAP via the same interface as our

external trades.

What do you think are the key benefits that STP and automation

brings to your organisation?

B.H.: As already mentioned, we want to run a lean and highly

efficient group treasury. Due to our high level of centralisation,

we cater our global subsidiaries for a multitude of service

functions and quality advisory. Reducing formerly labour-

intensive manual processes involved with our daily flow

business, like telephone trading, deal capture and audit trail,

simply gives us more time to focus on value-driving tasks. The

collaborative environment of a cross-product Multibank Portal

like 360T, and our SAP treasury and legacy components, have

brought us very close to an end-to-end STP of 90% of our daily

flow business. We identified:

• around 8 minutes overall time savings per average

external ticket

• 80% time savings across all trading activities (internal

and external)

• further reduction of error margin

• significant improvement of trade performance analysis

• improved price discovery through higher transparency

• credibility of intra-group quotes due to real-time market

data feed

• replacement of market information systems on group level

You said you also chose to trade electronically with your

subsidiaries. What prompted that choice, how exactly does this

work and where are you gaining most efficiencies from

its deployment?

B.B.: Our key driver for selecting a trading platform was to automate

our intra-group trading activities with a volume of approximately

four thousand transactions p.a. 360T offers a technology covering

both internal and external trading in a collaborative environment.

This also enables automated capture of all trade details into our

SAP environment here at Heidelberg’s Corporate Treasury through

a single interface.

Two of the most obvious shortcomings of our former intra-group

trading had been the un-

standardized types of

request formats via fax,

email and telephone, and

the missing 24h real-time

response to hedge and

funding requests across

all time zones. Our

demand profile for the

new trading system was

therefore to provide:

• 24h real-time tradable pricing

• Straight-through processing with SAP

• back-to-back trades with Multibank Portal

• autopricing and margin management

• intuitive usability

360T’s intra-group trading platform I-TEX fulfils these

requirements, which allows us to automate more than 85% of

our group-wide transactions with the same key benefits

internally as earlier mentioned, enabling true STP from 360T

deal execution, via our SAP treasury management system, right

into the legacy module.

>>>

Bernd Hampele

Bernd Bublies

What instruments are you commonly

trading online and do you plan to extend

your use of additional ones?

B.B.: Externally, we are e-trading a broad

range of plain vanilla FX products, including

Spot, Forward/Outright, Swaps and

Options, plus some standardized Option

strategies. We also do the majority of our

MM transactions online. Our main

subsidiaries will gradually execute all their

plain vanilla FX requests, inter-company

loans and deposits electronically with us.

Pursuing the strategy of continuously

improving treasury processes, it is our goal to run as

many processes as possible via our integrated

infrastructure to achieve the highest possible scale

effects. Thus, we are successively exploiting the capacity

of electronic trading with regards to new products and

critical parameters like illiquid currencies, high notionals

and longer maturities.

Would you agree that e-trading has had an effect on your

bank relationships?

B.B.: Yes, in several dimensions. First of all, it was

interesting to see which banks had already decided to

provide liquidity on 360T, fortunately reflecting a broad

range of our existing relationships at that time. Secondly,

we kindly requested the few remaining market makers to

follow us to the platform of our choice. Flexibility to

support clients in their free choice of underlying

transaction technology might become a growingly

important evaluation parameter for selecting bank

relationships of the future. Overall, we were very pleased

with our banks’ support. We also experience a facilitated

assessment of each individual relationships’ relative

performance.

Has e-trading met all your expectations and requirements

or do you still have a “wish list” to be fulfilled?

B.H.: We can say that experience has validated our

particular choice of both, our platform provider 360T and

our TMS provider SAP. Besides both individual technical

solutions matching our expectations and demand profile

to a maximum degree, we see the seamless STP between

both modules as the real leverage of our process

improvement. Both systems have proven to be reliable

technologies that help us to achieve our ambitious goals.

Looking ahead, we also expect information quality and

focus of the remaining verbal communication with our

banks to improve.

What plans do you have for the future development of

your e-treasury and e-trading activities?

B.H.: We are currently looking at an extension and further

integration of our automated matching and settlement

process. We also conduct feasibility studies with regards

to consolidating our group shared services and payment

factory, further reducing transaction numbers and costs.

It is also our goal to create a unified data communication

gateway, world wide banking, with our external banks

allowing for a state-of-the-art payment process, intra-

group clearing and reconciliation.

e-Forex talks with Bernd Hampele, Senior Project Manager, and Bernd Bublies, Head of FrontOffice, at Heidelberg-based Heidelberger Druckmaschinen AG about automation and e-trading in their group-wide treasury operation.


Case S

tudy

e-Forex C

ase S

tudy

e-Forex C

ase S

tudy

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Looking back to the late nineties, the single biggest shift in

focus for most banks operating in Global FX was the general

reduction of FX risk taking and conversely the development of

FX distribution activities. This desire to transact more customer

oriented FX business can partly be attributed to a climate of

more stringent risk management and compliance control. The

main reason however, is that this change occurred at a time

when revenue growth from FX Sales had exploded due to the

increased appetite of customers for conducting FX derivatives

transactions.

The race had begun for banks to grow client franchises.

Recruitment trends at the time reflect this and many

salespeople were hired to enhance the banks’ product

capabilities or reach. Inevitably, traditional methods of

distribution were supplemented with various e-business tools

and from this point the traditional role of the FX Trader and FX

Salesperson began to change.

Current situation

Cut back to 2005 and the underlying objectives for many banks

remain unchanged with the emphasis still on provision of FX

services to the firm’s client base. What is different today is that

few people doubt that vanilla FX execution is on the whole

better handled by an e-platform. Indeed, with the increasing

sophistication of these systems, more complex transactions can

now be similarly handled. Nowadays the e-channel is

considered just another route to winning the clients business

and as such the e-sceptics have largely disappeared.

During the intervening period we have witnessed subtle

changes of attitude towards e-commerce skills when recruiting

FX Traders and Salespeople, with completely new roles

available for those willing to focus on e-commerce.

What then is in demand and why?

On the trading side of the business, people trading FX

derivatives have always been in demand and as the banks strive

to sell more structured, tailor made solutions, demand for this

type of skill-set has steadily increased in the last five years.


Global FX Recruitment:How is e-Commerce shaping the future?

Peter Harwood is Director - Foreign Exchange at Principal Search Ltd

Over the past three years, the role of the e-commerce specialisthas evolved significantly within the global Foreign Exchangemarket. All mainstream and most niche houses that compete inthis sector have embraced new technology and now offer clientsa range of services distributed through a network of e-commercechannels. In order to examine how e-business is affecting thepattern of Global FX recruitment, we need to identify what majorfactors have influenced recruitment policy in recent history andsubsequently analyse any new trends that can be observed.


Until recently derivatives traders were the exception to the rule

as FX Trading went through a period of decline. Many banks

pursued a policy of reduced risk taking and cutting back on the

number of Traders responsible for market making.

“With the wide-scale application of e-commerce technologies, available liquidity and pricetransparency to most marketparticipants has increased”

In the last year we have seen much renewed interest from our

clients in FX Trading, in particular Proprietary Trading skills are

most in demand. This has largely been driven by the leveraged

community looking for Fund diversification and seeing the

banks as the natural source for appropriate candidates.

With the wide-scale application of e-commerce technologies,

available liquidity and price transparency to most market

participants has increased. The role of the traditional FX

Salesperson has therefore changed in several ways. Client

relationships have become even more important as the client

may have been offered the same execution service from five

competing banks but will probably choose to execute the

business with a most trusted or favourite counterpart. With

vanilla FX increasingly commoditized, banks are looking to hire

specialists to distribute Emerging Markets products or sell more

complex derivatives in order to achieve higher margins.

Additionally, e-commerce specialist FX Salespeople are also

in demand.

These candidates have demonstrated adaptability and the skill

to embrace new technologies to enhance profitability. They

have been able to move into e-commerce focussed distribution

roles despite having more traditional FX Sales backgrounds.

These Sales operatives have good client development skills

combined with excellent FX product knowledge and are able to

empathize with clients who see the world from a trading and

not a technology point of view.

On the whole there is an expectation by most banks when

recruiting FX Salespeople that they are able to utilise e-business

tools to strengthen client relationships by offering a wider

range of services such as the benefits of STP for example. The

role of the e-commerce expert has also changed as candidates

with additional FX Sales skills are increasingly favoured over

those with backgrounds purely in technology.

It is now not good enough to understand your firms’ e-business

tool; the requirement is also to understand your clients’

underlying business.

“Over the last year, by far the busiest sector for search specialists in

FX globally has been Hedge Fund Sales and Marketing”

Future recruitment

Since early 2004, FX recruitment has been very busy, many

projects were finally given the go ahead and a number of firms

were seen to be growing staff levels within Global FX. Despite

a number of redundancies at the start of 2005 as banks adjusted

headcount, there has not been a glut of strong candidates in the

market. Furthermore, the ‘pack’ instinct of the Investment Bank

community has created several overheated areas where

packages continue to rise sharply.

Over the last year, by far the busiest sector for search specialists

in FX globally has been Hedge Fund Sales and Marketing. We

estimate that every top 20 bank in the market has sought to

increase exposure to this client sector in this period and on

average they have hired more than 2 people each.

This has therefore, left many organizations short of experienced

staff providing HF coverage. In order to retain relationships

with clients in the HF community, some banks are offering other

investor services linked to FX such as providing seed finance or

capital allocation. In some cases these banks are exploring

opportunities by utilising links with Private Banks or HNW

networks.

>>>

The major overseas growth area in FX is likely to be Asia with

many firms still viewing China as the next big opportunity.

Exotic product skills are still very much in demand in the region

as the use of FX derivatives into retail distribution networks is

increasingly common. In the US, the greatest demand has

been for senior FX Salespeople with strong relationships as

banks continue to compete to distribute FX products.

Summary

For many FX market participants the challenge of identifying

and hiring the best talent for their firms has become

increasingly difficult and expensive. With many of the larger

commercial banks challenging the dominance of the US

Investment Banks in this field, the trend of more aggressive

recruitment practises such as team moves looks set to continue.

To answer the original question of how e-commerce is shaping

the future, it can clearly be demonstrated that it has already

impacted the present and now is a major factor for

consideration in all modern FX franchises. As technical

development and sophistication of e-forex products continues

apace, it remains to be seen just how far e-forex will continue

to change the underlying FX business.

Global FX Recruitment: How is e-Commerce shaping the future?

An archive of Interviews, Viewpoints,

Case studies and Roundtable features

The latest FX e-commerce news and

information from around the world

Comprehensive coverage and reviews

of e-FX and online trading technology

A new demonstration section offering

interactive online trading demos

www.e-Forex.net

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How so you ask? Foreign exchange, the ultimate commodity, is

becoming an increasingly larger marketplace and a more tradable

asset class in its own right. The onslaught of more customers,

more risk, more profit opportunities, more volume, more

technology, more players have inspired banks to provide currency

overlay research and strategy. In addition, speculation activity has

increased and so has hedging activity from corporates and

portfolio managers who are wary of the once more predictable

dollar. All of this is driving demand for liquidity and depth of

market. Yet the market infrastructure has remained virtually

unchanged, just like the torso that has yet to catch up with the

arms and legs. We have only to look at more mature asset classes

like equities, futures and government bonds in which central

market mechanisms provide not just price discovery and access

but take credit risk off the table, offer true anonymity to drive out

information slippage, and facilitate the incorporation of straight-

through processing to eliminate the risk of manual error.

We can see first hand how by reducing credit risk and

eliminating settlement risk, a market becomes primed for larger

average trade sizes, deeper quotes, more capital commitment,

lower-cost hedging, new trading products, less slippage and

market impact, new market participants, greater trading volume,

and more profit. Isn’t it inevitable that the foreign exchange

market will go this way as well? Currently the wholesale market

structure is built upon overlapping bilateral credit relationships

even though a central market mechanism is now available for

foreign exchange through CLS. Instead of looking ahead to

other proven models and taking the best of each, traders seems

content to adopt systems that merely commingle these bilateral

credit relationships to create a sense of access to liquidity. And

as for anonymity? Well, they don’t tell anybody who you are –

until you trade your first million, anyway.

At eSpeed we have a better way - a market structure that brings

the same benefits to the foreign exchange market that we

originally brought to government bonds, and that electronic

exchanges have brought to equities and futures. eSpeed is

proud to be pioneering a new foreign exchange market

structure with the introduction of a truly anonymous, multiple

buyers-multiple sellers, CLS-based marketplace with market-

maker and order-driven liquidity. Built on our flexible, scalable

technology and expertise in creating structures that facilitate

liquid markets, eSpeed is one of the means by which the

foreign exchange market can move more readily to reaching its

potential.

As large as the global foreign exchange market has become, there is an argument that it is still too small for its

potential. Like a sprouting teenager with limbs longer than torso, foreign exchange is still at its awkward stage.

eSpeed - Pioneering anew FX market structureJonathan Wykes, Director, Global Product Manager at eSpeed

Foreign Exchange on eSpeedA compelling alternative to existing electronic FX

platforms and voice services, eSpeed delivers the

world's biggest financial market to your desktop.

• A unique central counterparty model, leveraging the

CLS advantage to eliminate intra-day settlement risk

• Anonymous trading with instantaneous execution

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• Complete price transparency enabling traders to see

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• A flexible platform that only requires a single credit

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• Proven and reliable technology from eSpeed, offers

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The technical capability to stream executableprices to an unlimited number of clients viamultiple channels has created a new set ofchallenges and opportunities for competitorsin the foreign exchange markets. Last year,Martin Mallet, the Bank of England's chiefdealer pointed out the increased risk for banksparticipating in multiple markets. This isbecause customers could, in theory, all accessthe same price at the same time creating greatpotential losses for the market making bankdistributing the price, as can be seen in theexamples opposite.

Real-time transactions,real life issues

How banks are approaching the challenges and opportunities ofprice-distribution in a new foreign exchange trading environment

Brian Maccaba is CEO andfounder of Cognotec


>>>

These losses and opportunities can occur because of two

relatively new factors which have emerged in the wake of wide-

scale electronic trading. These are:

• The massive scalability of the latest generation of e-

commerce systems

• The increased speed of pricing and execution hampering the

bank's ability to respond to market fluctuations

Time and competitiveness

Executable prices mean that a transaction can now be

completed in milli-seconds compared to the traditional RFQ

model. However, in order to make the right price banks need the

tools to control their market prices in real-time. The safe and

profitable management of streaming executable prices is

emerging as a key competitive requirement, as has the demand

emerged for the technical solutions to perform this increasingly

important task. The next generation of price management tools

will soon make it possible to provide up to 100,000 different

clients with real-time streaming prices which have been

individually tailored to their needs, and, crucially, to the needs

of the market making bank.

Now individual dealers are able to manage their price

distribution channels much more efficiently. Utilising the same

underlying price, traders have the tools to vary flow, for

instance reducing deal flow through ECN’s or increase flow

through proprietary channels by controlling the price(s).

In addition, prices can be set to respond in real-time to market

activity retaining the customised client spreads set by the

dealing desk.

Tools like the Cognotec Market Rate Manager solution not only

address the problem that the Bank of England has alluded to -

that prices displayed on multiple systems leads to the illusion of

a greater depth of liquidity in the forex markets than actually

exists. They also address banks' needs to avoid arbitrage

opportunities by traders who spot a lag in their ability to

respond accurately and quickly to changing market conditions.

The new generation of pricing tools will further reduce risk by:

• Enabling dealt price information to be fed dynamically and

directly into new price generation and distribution.

• Traders having the ability to set upper limits to deal flow

across distribution channels and enabling them to activate a

‘Right to Refuse’ trade controls.

Managing exposures

Executable streaming prices increase the risks that banks face,

particularly from concurrent dealing (large numbers of

customers dealing simultaneously and generating unexpected

positions) and 'machine gunning' - repeated dealing by the

same customer. These problems can be addressed using a

number of approaches. For instance price regeneration means

that after a deal is fulfilled, the liquidity available at that price is

automatically reduced on a sliding scale over time. This can be

applied to all customers or just those for whom data indicates

unusual trading patterns. In addition, using position control

tools, the price can be manipulated to respond either upward or

downward to the size of an order or the bank's position in a

particular market and this can be complemented by absolute

limits and automatic cut-outs.

However, this is not the end of the story. As explained above,

the time delay experienced by banks in calculating and

distributing price changes (and price withdrawals) can cost

money - again a problem which is exacerbated in a real-time

trading environment. Time lags can be minimised by selecting

the appropriate presentation layer - Java rather than HTML -

and utilising the most efficient network of servers to minimise

communication time between the distribution platform and the

end client. Finally, it is necessary to minimise the number of

technology components between the price generation function

and the price distribution function.

How these price management systems are used varies widely

from organisation to organisation. Some use it almost as a

black box which almost entirely automates price provision.

Others are more conservative and won't put out a price unless

a trader’s name is attached to it.


Efficiencies

The efficient management of a bank's

market rate starts with the

manipulation of the raw data feeds it

is receiving. Tailoring an underlying

'bank rate' to specific clients is only

useful if the bank rate itself is entirely

reliable. Market Rate Manager

addresses this problem by sitting

between the raw data feeds and the

bank's pricing engine. It configures

the prices of the bank reflecting the

bank's own market position, external

trading conditions e.g. volatility

warnings and the bank's required

spread.

As a result, traders can have complete

confidence that the prices they are

quoting are accurate and reflect the

bank's own market position. In

particularly choppy market conditions

the bank can retain an overview of its

position and automatically quote prices that reflect its position

and promote its trading strategy. Traders become more

competitive in fast moving markets because the speed with

which they are able to react to conditions is vastly improved.

The growth of automated trading - and dealing platforms which

utilise this technology - as well as the increased speed of

transactions have created an increasingly competitive business

landscape with new challenges. These challenges require new

solutions in order to be efficiently addressed.

These solutions now exist. However, many banks are still on a

learning curve and have yet to realise the true impact that the

replication of trading channels - together with the introduction

of executable streaming prices across these platforms will have

on the efficiency and ability of the dealing room to respond to

the banks' needs and their customers' demands. The ultimate

challenge is to create a technology platform capable of massive

scalability in the distribution of differentiated, real time prices

that technology is now available.

Real-time transactions, real life issues

Market Rate Manager - LiveThe Bank of Tokyo-Mitsubishi recently went live with

Cognotec’s Market Rate Manager (MRM) in order to supply

a single source of bank-specific market rates to its various

dealing channels. These include the bank's online dealing

system, FX@BTM, as well as its various internal dealing

systems and FXall. The purpose of the implementation was

to promote dealing room workflow efficiencies as well as

provide total dealer transparency of all the rates that were

being provided to the various dealing channels.

"The introduction of the MRM service is a natural progression

in providing the most efficient rates to our clients, both local

and international. We will use MRM to provide rates to our

internal systems in Tokyo in addition to our domestic and

global clients on FX@BTM and FXall, providing multiple levels

of efficiency," explained Kenichi Nakao, senior manager,

Foreign Exchange & Treasury Division.

Yuji Nagasaka, manager, Foreign Exchange & Treasury

Division added: "The MRM service provides us with multiple

benefits in the dealing room. Our dealers have better

visibility on the FX rates they provide to various systems.

This gives our dealers the capability to provide better rates

to our clients, with increased confidence in the rates they are

providing. Also, using MRM's time zone options, MRM gives

our London and New York offices more independence in

providing their own rates to clients."

Importantly, The Bank of Tokyo Mitsubishi's dealers are now

integrated into the banks' overall eFX workflow due to the

fact that deals are recorded then pulled back into the system

and reintegrated into the price discovery mechanism. A

further 9 international banks in all three major centres have

adopted this critical new technology.


Bloomberg is capitalizing on its far-reaching user community

and explosive growth in the FX derivatives market to become

the industry standard pricing calculator for the buy-side.

Bloomberg’s strategy to capitalize on this growth in the foreign

exchange derivatives marketplace is to provide transparency,

analysis, valuation and electronic trading to its terminal

customers at no additional charge. By working with leading

banks and brokers, Bloomberg is able to provide its 200,000

users with both indicative and executable implied volatilities

across the entire term structure.

Bloomberg’s volatility surface functionality allows users to view

and download both the indicative and customized volatilities

that have been sent to them by their banks. This volatility

surface function also allows users to interpolate implied

volatilities for broken date maturities and deltas.

By storing both the historical and implied volatilities,

Bloomberg users are able to test their assumptions about

volatility as well as analyze issues and concerns, such as how

realized volatility has compared to quoted or implied volatility

over time.

Bloomberg’s comprehensive options calculators, including both

multi-leg and exotic option types, also leverage this volatility

database so that the appropriate volatility is being used to value

the option correctly.

Additionally, this option calculator allows users to save their

positions so that they can mark to market or stress test them

either on a real-time basis or at a later date. Electronic trading

has been a hot topic in the FX market and Bloomberg plans to

offer options professionals an electronic trading platform that

combines our vast communication network with our new

options calculators. Bloomberg users will be able to structure

options on Bloomberg’s improved calculators and then send

that option out to the bank of their choice for pricing. This same

functionality will also allow banks to shop options ideas and

strategies out to their customer.

By listening to its customers and strengthening their product,

Bloomberg is confident that it will be able to offer the single

industry standard solution for any foreign exchange professional.



Bloomberg capitalizes on its far-reaching user community

Dave Tamburelli

Tel: +1-212-617-2043

[email protected]

Phillip Cunn

Tel: +1-212-617-5136

[email protected]


Commerzbank Corporates & Markets (CBCM) is the integratedCorporate and Investment Banking division of Commerzbank AG.Its Foreign Exchange (FX) group offers sales, trading andresearch in all major currencies and exotics. It provides its clientswith tailor-made solutions and a large variety of FX products,including forwards, options, spot, structures and hybridstructures. CBCM has now strengthened its foreign exchangetrading and distribution capabilities with the launch ofcomforex:plus, a new foreign exchange electronic tradingplatform.

State-of-the-art functionality

CBCM’s comforex:plus offers a new state-of-the-art FX electronic

trading platform that provides customers with direct access to

liquidity and competitive pricing in a wide range of currency pairs

including:

• EUR/USD

• EUR/GBP

• EUR/JPY

The system delivers the highest standards for price discovery,

immediate execution and post-trade information.

comforex:plus is based on CBCM’s acknowledged know-how and

long experience as one of the leading banks in FX trading. As our

client, you can benefit from CBCM’s global presence and our

strong position in the international FX markets. We provide

individual solutions by identifying pricing and hedging the

market risks that our customers want to avoid.

Innovative Functionality

comforex:plus offers you the following advantages:

• Online trade execution for FX Spot, Outright, Forward/Forward

and Swaps

• Fastest possible execution via “Live Streaming Prices” and “1

Click Trading”

• Comprehensive rate information

• Personalised screen configuration and language selection

• A full set of deal blotters with real-time and historical reports

of all trading activity

• Report download facility

• User-friendly Windows technology with technical online help

• Highest security standards

• Dealing for multiple legal entries

FX Research

As our client, you can also benefit from CBCM’s FX Research,

which is consistently ranked highly in sector league tables, has

been awarded a number of awards, and features a wide variety of

currency analyses. In addition, we can provide our trading

partners with targeted market studies. CBCM is one of the leading

institutions for currency forecasting, according to data compiled

by Bloomberg, where CBCM was ranked second for the accuracy

of its euro-dollar forecast and seventh best currency forecaster in

the overall results (Bloomberg Markets, February 2005). The

rankings were based on forecasts by 50 firms for seven major

exchange rates in the four quarters ending 30 September 2004.

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Benefits to buy and sell-

sides

Both buy and sell-sides derive

benefits from APIs. The sell-side sees

greater flow and customer retention, even if

shared. APIs can improve a bank’s competitive

advantage. Although it is rare that clients make their

decision to use a bank solely on their ability to offer an

API, they are increasingly seeing it as a differentiating

factor in a market where opportunities for banks to

distinguish themselves from their competitors continue

to diminish. APIs allow quicker introduction of new

products, and some banks use them as an

advertisement for their other product lines. In return,

their clients are in a better position to negotiate rates

offered by banks.

As banks and their clients become increasinglyaccepting of electronic trading, their level ofsophistication rises, fuelling the demand formore highly automated services. The range ofthese services has expanded from post-trade STPinto price feeds and direct trading links. And it isnot just the banks that are offering their clientsdirect APIs. ECNs provide APIs to automatetrading for the buy and sell-sides, either directly,or through vendor-supplied electronic tradingsystems. They are also offering “off the shelf”integration with the major trade capture and riskmanagement systems, through APIs, furthersmoothing the end-to-end automation process.

API’s – boosting access to eFX solutions

James Kemp,

Managing Director, Stentra,

takes a look at the growing

importance of APIs and how,

in particular, APIs are boosting

access to eFX [email protected]


>>>Clients are also able to make better use of their margins and

limits. Both sides benefit from improved connectivity

throughout the trading lifecycle, streamlined processing and

reduced costs.

Improved functionality and access to online FX trading solutions

Banks offer their clients APIs for price feeds, trading and post-

trade processing. On the pricing front, streaming indicative

rates are already an established part of the sell-side offering,

while demand for streaming executable rates continues to

grow. API-based price feeds allow the buy-side to capture

prices sent by their banks; this pricing history can then be

analysed and better trading decisions made.

The ability to request prices directly from multiple sources,

without having to go through a multi-bank portal, enables

some clients to make enquiries in the market without

broadcasting their intentions across it. APIs enable the buy-

side to consolidate multiple feeds into a single GUI allowing

them to fulfil due diligence obligations for price sourcing. The

black-box trading systems used by many funds are also

dependent on the availability of these APIs.

Trading APIs initially offered the Request for Quote (RFQ)

model for Spot FX. However, the trend is now moving towards

Streaming Executable Rates and to providing a greater range

of products such as forwards and NDFs. Improved technology

and increased comfort with electronic trading have led to

higher auto-trading limits which have, in turn, encouraged a

greater willingness to extend the range of products offered

electronically. Automation of functionality has progressed

steadily, growing to include functions important to institutional

clients such as block trades/pre-trade splits and post-trade

allocations.

Post-trade APIs streamline the process for both bank and client,

reducing errors and therefore lowering the cost of processing

and reducing settlement risk. In some cases, post-trade APIs

are important for the growth of products.

For example, the success of prime brokerage is dependent, in

part, on the ability to automate the flow of information

between the parties, for example, trade matching. Without it

the process is so manually intensive that some of the cost

savings and operating efficiencies associated with prime

brokerage are eroded.

Bank treasury groups are starting to see the value of using APIs

to service their internal clients, for example, providing

automated pricing and trading. However, political barriers and

issues surrounding P&L ownership have slowed the

achievement of potential benefits in this area. Where it has

been implemented, the service is often effectively white-

labelled to internal groups, allowing users to offer a seamless

cross-product service to their own clients, as well as providing

an opportunity to improve client “stickiness”. For example,

once a client has completed a letter of credit transaction they

are then offered the ability to carry out a related foreign

exchange transaction as well. Another use relates to groups

closer to the FX desk (e.g. FX Options), where volumes justify

the automation of the FX spot leg through an API service.

And it is not only banks that are offering APIs. The early

success of State Street’s FXConnect product stemmed, in part,

from its provision of automated connectivity and functionality

to the buy-side. Other multi-bank portals including FXall,

Currenex and Hotspot have used APIs to embed their offerings

in the major vendor-supplied FX execution systems, as well as

offering both buy and sell- sides direct connectivity. The

vendors themselves offer APIs allowing purchasers of their

systems to integrate proprietary pricing, credit/margin

management, trade capture and risk management systems.

API technology

APIs require development on both sides. The service provider

manages the business logic for pricing and trading,

persistence, authentication of connections and data formats,

authorisation, and their own connectivity. The service recipient

is responsible for generating messages in a pre-agreed format

and managing their own connectivity. A typical architecture is

shown below.

“API-based price feedsallow the buy-side tocapture prices sent by

their banks”

API’s – boosting access to eFX solutions

Common API communication protocols include Java, RMI,

and HTTP. The most common data protocols include Java

objects, XML and FIX. Use of the FIX protocol is increasing as

the FX-related part of the standard continues to evolve. The

buy-side is driving this increase, taking advantage of existing

implementations of FIX engines to standardise their

integrations, and demanding that their service providers

accommodate any customisation to their FX messages.

Future of APIs

It is likely that the technologies used will consolidate around

two or three main standards, driven by a need on both buy

and sell-sides to standardise their integrations and the sell-

side’s desire to increase their ability to deliver services with

“production line” efficiency. FIX can only become the

dominant delivery mechanism if existing buy-side

infrastructure supports this delivery capability.

Use of APIs will continue to grow across the board. For

certain institutional investors it will become a fundamental

expectation for the provision of liquidity. Streaming

executable rates will become the dominant method of price

delivery to clients, creating a more difficult environment for

risk management and leading to greater pressures on banks

to look at different ways of trading such as algorithmic

methods. The number and types of products on offer will also

increase as electronic trading becomes fully embedded in the

FX landscape. Failure to provide electronic services, including

API capabilities, will almost certainly result in liquidity

providers being shut out of the medium-to-large sized

institutional investment client segment.

e-Forex asks Neill Penney, Global Head of Product Strategy

at FXall, to tell us a little about their API’s.

Automated connectivity through

APIs has transformed trading for

high volume market participants

such as banks, asset managers,

hedge funds and multinational

corporations. FXall was the first

platform to deliver automated

streaming prices to customers, by

connecting to banks’ rate engines through proprietary API

technology. This enabled banks to automate pricing and

dealing, cutting the average time it took to respond to

customer requests from more than 30 seconds to fewer

than two.

FXall soon recognized that the buy-side would also benefit

from API connectivity to FXall, and in response built a suite of

tools that enable customers to connect in a variety of ways

depending on their trading and workflow requirements. For

example, many asset managers and corporations have built

the FXall dealing screen into their treasury or portfolio

management platform, so that they can trade without leaving

their familiar dealing environment.

Among active dealers we have seen an increasing trend

towards trading driven by black box models. APIs play a key

part in facilitating this. The trading model monitors the

market via the API and recommends trades based on market

conditions, which are then executed automatically on FXall.

Because post-trade and execution details are handled

automatically, the trader is free to focus on strategy and

monitoring overall market position. Clients can interface to

FXall through a range of connectivity tools, including Java*,

Microsoft’s COM* and FIX. At the end of 2003, FXall began

work with FIX to set up a FIX working group for foreign

exchange, of which FXall’s CTO, Jack Lemonik, is co-chair.

For banks and customers, connecting through FIX eliminates

the need to install API technology, since messages can be

sent and delivered through a standard engine.

At FXall, we want our customers to be able to connect to us

in whatever way they choose – whether that is through FIX or

one of our APIs. We will continue to invest in both to ensure

that our users always have access to the latest advances in

automated trading, however they choose to deal.

*Java is the registered trademark of Sun Microsystems; COM is a trademark of

Microsoft Corp.

Editors note:


©2004 Wachovia Corporation; Wachovia Bank, N.A. 042000

C A R N A V A L

O N L I N E F X T R A D I N G ?

T E A C H U S A B O U T

A g r e a t i d e a t r a n s c e n d s c u l t u r e s , t i m e z o n e s a n d b o r d e r s .

W H A T C A N

Bring the global market straight to your computer screen with Wachovia’s Online FX. No matterwhere, when or how you need to initiate and execute international wires or drafts, Online FX enablesyou to quickly and securely — through safeguarded HTTP and digital certificates — conduct yourmulti-currency transactions. With this one comprehensive system, you can:

• Deal in the spot and forward FX market 24 hours a day.• Receive real-time competitive exchange rates in more than 25 foreign currencies.• Create and manage payment instructions.• Take advantage of split payments, onsite FX drafts and window forwards and draw downs.• View historical deal information.• Download customized reports.

Talk to us. Together, we can achieve uncommon results. Please call 704-374-2783. In London,please call 44-207-623-5375.

Uncommon Wisdom


Most people know that the Financial Information eXchange (FIX)Protocol started off in the equity sector, and then expanded into otherasset classes including Fixed Income and Derivatives. But the waythat FIX has been used for these asset classes has also been appliedby many firms to automate their foreign exchange (FX) activities inone way or another. Initially, these firms saw what FIX could do forother asset classes, and used the same principles for their FXmessaging. However, because FIX wasn’t yet developed to dealspecifically with FX, there has been an element of “shoe-horning”involved – making the shoe fit even though it wasn’t exactly the rightsize, but at least a shoe is better than no shoe!

FIX – aiming to improvethe FX trading process

Chris Pickles is Managerof Industry Relations

at Radianz

Most people know that the Financial Information eXchange

(FIX) Protocol started off in the equity sector, and then

expanded into other asset classes including Fixed Income and

Derivatives. But the way that FIX has been used for these asset

classes has also been applied by many firms to automate their

foreign exchange (FX) activities in one way or another. Initially,

these firms saw what FIX could do for other asset classes, and

used the same principles for their FX messaging. However,

because FIX wasn’t yet developed to deal specifically with FX,

there has been an element of “shoe-horning” involved –

making the shoe fit even though it wasn’t exactly the right size,

but at least a shoe is better than no shoe!

The FX Working Group

There are some areas of FX activity that today are either not

handled by FIX or that could be handled more effectively. As a

result, the members of FIX Protocol Ltd have set up an FX

Working Group to address the specific issues involved.

Because FIX Protocol Ltd (FPL) is an “inclusive” standards body,

the FX Working Group is made up of volunteer practitioners

from across the industry as a whole – buy-side, sell-side and

vendors too – as well as from across the international

membership of FPL. Any member of FPL can join in any FPL

working group or committee to add their knowledge and

experience into the standards development process. If you hear

that someone is “on the FIX Committee”, that isn’t an exclusive

role – it means that they are one of many FPL members feeding

benefits back to the industry that they work in.

Over the last year the FX Working Group has identified four

priority areas for the FIX standards process to address:

• general order flow for FX

• FX Swaps

• NDFs

• streaming prices.

In order to speed the process of new standards development,

four sub-groups have been set up to work in parallel and to

focus on these priority areas. Each sub-group is made up of

several FPL members that have subject-matter expertise in the

specific area involved. Overall, the FX Working Group has set

itself the goal of providing a defined set of deliverables.

The extended FIX standard will clearly have to be able to

handle the main FX message types. As always with FIX, its aim

is not to “re-invent the wheel” but to re-use the existing

functionality of FIX as far as possible without adding

unnecessary elements. But the “acid test” of any standard is

how widely it is adopted.

>>>

BAXTER-Solutions Kft.e-Mail: [email protected] | phone: +36 1 235 06 87

To ensure that “FIX for FX” is adopted as widely as possible,the FX Working Group is also developing a “business-speak”document to explain how FIX can work and benefit the user inthe FX environment, so as to encourage users to request thattheir own departments, their service providers and theircustomers use FIX for FX. Another part of the deliverables willbe documentation of usage procedures and how to deploy FIXto the best advantage in the FX environment.

A community story

A goal of everyone who uses FIX is that more people shoulduse FIX. It’s a “community” story – the more people in thecommunity who use it, the more everyone in the communitybenefits. Each new member of the community increases thesize of the community, which in turn increases the economiesof scale for all members of the community. Again, the FIXcommunity is inclusive, not exclusive. The FXWorking Group is also working with TWIST(Treasury Workstation IntegrationStandards Team), the organization thatdrives the TWIST standard and thatincludes particularly stronginvolvement from the corporatetreasury sector. And as SWIFTis a member of FIX ProtocolLtd it, also brings its ownexpertise to the FIX standardsdevelopment process.

Two stage approach

The FX Working Group istaking a two-stage approach toenhancing FIX for FX. The firstphase focuses on the topic from a“business” viewpoint, andtranslates the business process flowsfor the FX area in question into layman'sterms. This phase is not intended to be IT-technical in anyway. Once the first phase iscompleted, and the business processes have beenexplained in terms that everyone can understand, then thesecond phase starts in order to define the technical solution.This phase tries to utilise existing fields within the FIX protocol while adding any additional fields that areidentified as being necessary as a result of the businessprocess analysis phase.

A global association

FIX Protocol Ltd is a global industry association – it hasregional bodies in the Americas, Europe/Middle East/Africa,Asia/Pacific and Japan, and individuals from member firmsparticipate from around the world. As such, it can’t rely on theslow process of calling quarterly face-to-face standardsdevelopment meetings. It has to work at Internet speed, usingemail, instant messaging, Internet telephony and webpublishing – solutions that work fast at minimal cost.

This shows in the way that FIX is developed as a standard.Progress does not have to wait on getting everyone in theworld to agree the details of a particular requirement. Progressand usage can start within days of an individual firmidentifying and registering a new requirement with FIXProtocol Ltd.

“The fact that standards such as FIXand TWIST are being used and furtherdeveloped for FX processing shows theindustry’s dissatisfaction with the other

standards in the market. ”

These individual changes are then reviewed after the event tosee how they should impact the next release of FIX. All of thisuser input helps to build each further release of FIX into a morepowerful and all-embracing solution for the industry.

The fact that standards such as FIX and TWIST are being usedand further developed for FX processing shows the industry’s

dissatisfaction with the other standards in themarket. If current standards used elsewhere by

FX market participants met theirrequirements, you can be sure that

dozens of industry experts would notnow be spending their valuable

time sitting down to develop andenhance new standards! FIXand TWIST are the result ofcustomer demand, and in thebusiness world we have alllearned that “the customer isking”. FIX itself can work onany type of network, from thepublic Internet up to the most

expensive and secure privatenetworks. As explained earlier,

FIX is also readily and quicklyadaptable to the changing needs of

the market and of individual users. Ittherefore provides an element of

insurance and “future-proofing” in a sectorwhere industry standards generally give the

impression of being about “future-avoidance”.

Coming challenges

Perhaps the next big challenge that faces the FX industry ishow to automate trade processing for the buy-side – corporatetreasury managers, asset managers, etc. One piece of thepuzzle that is missing today and that will make it even easierfor banks and corporates to do FX business directly is acommon business-oriented protocol. Again, this is wheremessaging protocols like FIX come in. Today FIX is beingadapted to handle more FX transaction and message types andto process real-time streaming prices. The sell-side banksalready use FIX heavily for securities trade processing. UsingFIX for their FX business, they can re-use the investment thatthey have already made in FIX for securities.

They can re-use the Internet and community extranetinfrastructures that they already use in order to deliver their FXservices to their clients. And they can reduce their costs byautomating even more of their FX business process. FIX willenable change and increased efficiency within the FX industryto a degree that has not been seen since electronic FX tradingwas first introduced over 20 years ago.


FIX – aiming to improve the FX trading process

Danske Bank is the largest bank in Denmark and a leading player

in the Scandinavian financial markets. The Danske Bank Group

offers a wide range of financial services, including insurance,

mortgage finance, asset management, brokerage, real estate

and leasing services. Over 800,000 users rely on Danske Bank’s

online banking and trading services – and of course, security and

stability are always in focus.

With excellent ratings at both Moody’s and Standard and Poor’s,

Danske Bank offers a one-stop gateway to the top of Europe, and

although our Scandinavian roots afford us a distinct advantage

in the region they certainly don’t hold us back from further

international growth.

Key figures from our 2004 annual report show:

• Total assets: DKr2,078bn

• Shareholders' equity: DKr61bn

• Solvency ratio: 10.2%

• Subordinated debt: DKr34bn

• Core earnings for 2004: DKr12,682m

Danske Bank – always open for FX

Within the realms of FX we offer a dedicated team focusing on

global flow 24 hours a day. High-tech access to our services is

available through all channels – Danske Trader, Reuters

Dealing, and of course, by phone.

Danske Trader

The online tool for FX spot, outright and swap transactions for a

wide range of currencies, Danske Trader provides consistent

streaming prices and a host of other valuable FX execution

services such as Quick Trade, split and block trades.

Individually configurable, Danske Trader is extremely flexible

and intuitive to use. Danske Orders is a part of Danske Trader,

and allows users to view, place, amend and cancel profit and

loss orders 24 hours a day. Individual settings mean you can

receive notification of order execution via email or SMS, and

track all your orders on the deal log.

Easy access at all times and a high level of control are crucial

factors built into Danske Trader, whilst Straight Through

Processing and a high level of transparency, coupled with the

ability to view price streaming online, mean that you need never

miss an opportunity.


Danske Bank –always open for FX


Danske Markets

Global Flow and Solutions

Jesper Ronald Petersen, e-mail [email protected] or

Christel Leonhard, e-mail [email protected]

Reuters DANO/DANX +45 3334 1003

Meet us at

ACI in Stockholm from 26 - 28 May 2005 Sibos in Copenhagen from 5 - 9 September 2005


The advent of e-FX has made algorithmic trading possiblein the FX world by providing efficient distribution ofmarket rates and the ability to automatically executetrades according to algorithmic parameters. Ever-increasing efficiency of the e-FX part of the tradingprocess allows for greater improvements in algorithmicsystems. The result? Increased trade flow throughelectronic forex execution systems and the continuedgrowth of FX trading volumes globally.

e-FX paves the road forFX algorithmic trading

Mitchell D. Mittman isCTO at TraderTools

F X A L G O R I T H M I C T R A D I N G


A definition

Before discussing the effect of e-FX on Algorithmic trading, a

definition of what algorithmic trading is in order. The Tower

Group defines algorithmic trading as:

“Taking a buy or sell order of a defined quantity, and placing it

into a quantitative model that automatically generates the

timing and size of orders based on the specific goals of the

algorithm. This approach is typically oriented around trading to

a specific benchmark, price or time.”

By combining a number of factors (including market price, wait-

time, order-type and other characteristics) into the buy or sell

decision, algorithmic trading “shapes” a position or strategy far

more effectively than pure program trading. Algorithmic trading

requires reliable market data and efficient execution of market

orders; without electronic execution, algorithmic trading

systems are futile. Algorithmic trading relies solely on the

execution of orders by direct computer-to-computer systems.

Algorithmic trading crosses the boundaries of both buy- and

sell-side. Large financial institutions tout their algorithms to

their institutional customers.

The buy side uses their own algorithmic trading platforms to

make efficient use of multiple lines of liquidity and execution

systems. The flexibility of algorithmic trading platform allows

the CTA to precisely “shape” the position by increasing the

probability of precise executions.

Market data – the evolution

Not too long ago, the only streaming source for real-time data in

FX for most institutions was a blended rate made available from

sources such as Reuters, Bridge and others. This rate

represented a “guesstimate” of the market and its direction.

“Algorithmic systems that rely on aconstant stream of executable

information could not have beendeployed until the advent of true

streaming executable rates.”

The customer then contacted their banks to get a “real” or

executable price. This process was telephone-based and moved

to a chat-like environment where prices were quoted on the

screen but here too, the process was strictly request for quote,

or RFQ.

Algorithmic systems that rely on a constant stream of

executable information could not have been deployed until the

advent of true streaming executable rates.

Automated execution venues

Currently there are three primary execution venues available

within the FX world:

1. Banks’ proprietary platforms

2. Portal (e.g. FXAll, Currenex, HotspotFX, etc)

3. Direct application programming interface (API) from bank to

customer

For each of the above channels, a method of transferring

information to and from the bank to the customer is necessary.

While this could be defined as an API, the requirements for

algorithmic trading are much more stringent.

These requirements include:

• Reliable price transmission

• Tagged price for execution

• Trade execution in a narrowly defined time period

• Reliable and timely trade confirmations

• Comprehensive error reporting

APIs have only just recently matured to incorporate the above

requirements thus paving the way for algorithmic trading

platforms.

Who’s got the “Best Price”? The process of algorithmic trading

A decision that any architect of an algorithmic trading system

must make is whether to rely on a single liquidity provider’s

rates or to receive a multiple number of streams and funnel

them through a “best price” mechanism.

Each path has its advantages and disadvantages. The single

liquidity provider is simpler to implement and manage; the

algorithm must respond to a smaller number of inputs and can

therefore execute trades faster with a higher probability of

successful completion due to less time spent in calculation. In

the event of system malfunction, there is one rates provider to

solve the problem.

The multi-stream approach is far more complex to design.

There are many more inputs to the filtering system, which have

an adverse affect on the overall performance. These additional

factors include multiple sources of prices, tolerance checks on

more inputs, and a more complicated setup for defining source

inputs. For example, a “funnel” is required to monitor all

liquidity streams and update the “best price” for any given

currency pair, using rules for tolerances.

>>>

On the other hand, multiple liquidity providers give thealgorithmic trading platform a wider range of potential prices.Byproducts of multiple liquidity providers are aggregation andbuilt-in fault tolerance in the event of feed failures. Onceimplemented, the algorithmic platform receives a “best price”rate (either from a single liquidity source or from the funnel ofmultiple liquidity providers) and then executes trades based onthe signals generated by the algorithms.

Obstacles along the road

The majority of the liquidity providers require trading on anygiven “price” within a very short period, typically measured inhundreds of milliseconds. When calculating the roundtrip toprocess a rate from the liquidity provider’s network to theclient’s WAN, very little time remains (potential latency) forapplying a complicated algorithmic system.

This latency can be broadly attributed to the efficiency of thealgorithmic trading platform itself and of the data deliverymechanism. By nature, algorithmic systems are sensitive to thequantity of data received in a given period. Foreign exchangerates update very rapidly and if the system handles multipledata feeds, the algorithmic trading system can easily beoverloaded. The requirement for partial fills and aggregationfurther increases the complexity of the system and thepotential for latency.

The primary delivery mechanism for these streams of liquidityis the public Internet. While many parts of the globe haveadequate Internet coverage, many parts do not. Even areas thatdo have broadband Internet access experience outages duringparts of the day at peak conditions. Additionally, the financialinstitutions themselves often do not have adequate WANconnectivity between branches. This can add to the time lagwhen executing trades received remotely.

The sheer complexity of an algorithmic system combined withthe inherent latency of the data transport medium (usually thepublic Internet) leads to a high potential rate of failure.

This is a recognized problem and calls for inventive solutionssuch as better compression and adaptive transfers

Overcoming the obstacles

- Internet latency

One of the difficulties of the majority of the liquidity providersis that information is streamed using some version of XML.XML is ASCII-based and is particularly inefficient in terms ofnetwork bandwidth. All solutions to this issue involve somesort of compression technique. XML tends to compress verywell. As in all solutions using compression, it is imperative thatthe system monitor whether the compression actuallyimproves the throughput or not. Most of the available solutionsin network compression techniques are adaptive in nature.

Since the data distribution medium is the Internet, in mostcases TCP is used as the underlying protocol. TCP is notparticularly efficient at recognizing and handling networkbottlenecks. TCP’s default behavior is to throttle output and onlyslowly return to a “normal” level of performance. A number ofcompanies offer a combined hardware and software servicethat provides “network-based route optimization” to addressthis problem. This solution places servers at various points onthe Internet backbones, providing a multiplex approach to datadelivery. This requires hardware and software to be installed atthe delivery points, resulting in capital expenditures.

Based on research, it is clear that there is a market nicheavailable for those companies that recognize the opportunity tostreamline Internet traffic, especially in cases of high-volume,low packet size traffic.

- Internal system latency

Once the price packet enters the customer’s system, the“funnel” must be flexible enough to adapt to marketconditions. This requires a multi-threaded architecture, with acentral server monitoring failure rates, best price, and numberof updates per currency pair across liquidity streams. Weightsto the foregoing are assigned and those streams that are morelikely to succeed are granted preferential status over those thathave had or are having stale conditions.

In essence, the “best price engine” should not only choose thebest price available, it should choose the best price that has thehighest probability of a successful execution. A successfulimplementation of this type of best price engine, coupled witha high degree of Internet throughput, will result in analgorithmic system that generates successful executed trades.

Summary

Algorithmic trading will play an increasingly important role inthe overall FX world in the near future. This is primarily due tothe confluence of a number of factors, including increasingefficiency of data transmission, the role of the major liquidityproviders in providing access to their rates, and thesophisticated requirements of the buy side.Technology issuesmust be solved before widespread adaptation of algorithmictrading platforms can take place. This article has mentioned afew potential solutions to these obstacles.


e-FX paves the road for FX algorithmic trading


Algorithmic trading in FX is simply following the path initially

made by the onset of electronic trading across the asset classes.

Robert Hegarty, vice president of securities and investments at

TowerGroup, comments:

“Algorithmic trading is a

fairly new phenomenon in

the equities markets,

where it’s only about 18

months old. While it took

a long time for the FX

markets to take up

electronification, it hasn’t

really taken long for FX to

pick up the next step,

algorithmic trading.”

Philippe Buhannic, chief executive officer and chairman at

TradingScreen, which produces a proprietary platform linking

buy side institutional investors with sell side firms across all

asset classes, states that the e-FX market is getting into

algorithmic trading in exactly the same way that equities did.

Buhannic comments that the means to carry out algorithmic

trading are evolving in the FX markets. “For algorithmic trading,

you need more than one source of liquidity and processes that

are streamed. Now FX is moving to streaming environment with

multiple sources, and at the same time firms have gained a lot of

experience out of the equity side of algorithmic trading. They’re

trying to transfer that experience to the e-FX market, using

tweaks that are specific to that market, in order to provide clients

with the most efficient execution.”

Greg Keers, head of execution services at buy

side technology vendors, Latent Zero, states

that the types of algorithms in use today for

equities broadly range from; arrival price

algorithms, where the benchmark is the

market price at the time the algorithm

recieves the order. This type of algorithm

tends to be more aggressive, and targets

minimal implementation

shortfall. And volume

weighted average price

(VWAP) algorithms, which

are more passive in that they

provide a strategy to achieve

a average execution price

over a specific time period.

We are likely to see different

types of algorithms designed

specifically for FX markets.

However, Banc of America Securities head of high frequency

trading, Ed Blair, comments that there is one problem for FX in

this arena: “There is one slight hitch; you can’t actually do VWAP

in FX, because FX is still a very funny market place; it’s opaque

and fragmented. But this makes it exciting, as it calls for a lot of

creativity on our part. Everything needs to be rethought and

rewritten, while taking what’s appropriate for the market into

account.”

FIX is going to be a major protocol in the FX algorithmic arena,

Hegarty states. “The FIX protocol are being used very heavily in

the FX markets as the protocol evolves past equities, the market

FIX was designed for.

Heather McLean is afreelance journalist


Robert Hegarty

Greg Keers

Algorithmic trading started life only a short time ago inthe equities markets. Since its inception, this mode ofautomated electronic trading has spread to the futuresmarkets, and finally has reached the world of electronicforeign exchange (e-FX). While the FX market as a wholetook its time getting into the electronic phase of itsdevelopment, it has jumped quickly onto the algorithmicbandwagon. Currently, many major banks andinstitutions are involved in algorithmic trading indifferent asset classes, and several of those are adaptingthat knowledge for the e-FX markets.

FX market perspectives


>>>

We’ve seen FIX become the predominant protocol for buy side

to sell side algorithms and algorithmic trades across asset

classes. FIX has become quite popular in the FX market and has

also been adopted for algorithmic trading in the equities

markets, so it makes sense that it will become the standard for

algorithmic trading in FX.”

Yet Keers adds: “We’re very active in embracing standards and the

use of the FIX protocol for FX provides an opportunity for rapid and

efficient connectivity for our buy-side clients. The more pro-

actively FX connections are certified and updated the more quicklly

our clients get connected.”

Peter Beard is chief executive officer at Apama, which produces

trading strategy management technologies.

He says the company is

developing strategies in

algorithmic trading for

e-FX, and some are already in use by customers. Apama's clients

include JP Morgan, Chase and ABN AMRO, plus more tier one

banks and large hedge funds.

Beard says algorithmic trading will provide massive benefits to

the e-FX market. “The benefits are for the buy and sell side. Both

will have the ability to rapidly execute new trading strategies in

relation to the market. It injects real time into trading, increasing

competitiveness, productivity and therefore, profitability.”

Buhannic believes algorithmic trading will help very large mutual

funds, where managers are currently managing very passively;

this method of trading will push them to manage very actively, he

states. Additionally, hedge funds will benefit. These more

aggressive traders will look for any tool that can provide them

with the best price, organisation of their quantities, and the

discretion of a more anonymous interface.

Banc of America Securities is one of the first businesses to move

ahead publicly with its work on algorithmic trading in the e-FX

arena. Lawrence Barwick, head of systematic trading at Banc of

America Securities, explains: “We’ve been the first off the

starting blocks on EBS, which has given us unparalleled

experience of how to deal with high frequency trading on FX.

Now we’re building on our excellent access to and experience of

the market, to see what value we can give to existing clients

though new methods of execution, one of which is algorithmic

trading in FX.”

Barwick adds that the situation for clients will improve: “With

algorithms, we can have a pre-thought out strategy. The client

gets a known strategy for his executions, one that is auditable,

and he also gets the ability to do a greater size trade but with

more stealth, because algorithmic trades fragment the execution

of a large trade.

Peter Beard

“The benefits are for thebuy and sell side. Bothwill have the ability torapidly execute newtrading strategies in

relation to the market.”

FX market perspectives


Banc of America Securities works with time weighted

average price (TWAP) algorithms as an alternative to VWAP

algorithms. Barwick comments: “This is a new initiative for us

this year. It’s exciting. We feel we’re probably the first to offer

this. In a world of ever tightening spreads, this is an

advantage.”

Buhannic agrees with Barwick: “A human being in FX can’t

call more than three people before the market changes. Tools

such as algorithmic trading can help break down these

barriers in FX caused by the phone.”

Algorithmic trading allows markets to run faster and more

trading to be done, Keers adds: “On the buy side, algorithmic

trading allows users to minimise the implicit transaction

costs of delay and impact through making trading quicker

and gentler. It is largely about trying to automate what a good

sales trader can do but enabling this in more fragmented and

granular markets than a human can follow.”

e-FX is going to have a great future in algorithmic trading,

Keers says. “You’re just starting to hear people talk about

algorithmic trading in e-FX. The fact that people are starting

to talk about it now means you can expect some innovators

to move into it within the next 12 months.”

Barwick sums up: “In the future, algorithmic trading in FX will

become very important. First though, we need take up from

clients. In the equities world around 15 to 20 per cent of buy

side firms use algorithmic trading. That figure is currently

zero per cent in FX, so there is some room for growth.”

Editor’s note

We ask Michael Chin, Global Head of Sales, at TradingScreen

to describe a little about TradeStrat, their multi-broker

strategy hub for the equity world.

The development of algorithmic trading strategies by

investment banks and brokers in the equity world has

prompted a number of the execution management systems to

determine how best to deliver this functionality to their end-

user clients.

TradingScreen has met this challenge with the launching of

TradeStrat, the leading multi-broker strategy hub. With

TradeStrat, TradingScreen end-users can access a full suite of

algorithmic trading tactics available from the leading

institutional brokers. This integration extends not only to

TradingScreen’s flagship product, TradeSmart, but also to its

powerful TradeExcel and TradeFIX products.

Additionally, end users are able to “tailor make” each strategy

with a number of parameters adapted to their view of the

market; for example start and end time, execution style and

minimum/maximum volume. This offers to institutional

investors, a best of breed system simplifying the access

to these strategies while enabling the preservation of

brokers' branding and proprietary, value-added client facing

execution tools.

Given TradingScreen’s ability to support multiple-asset class

trading, it is already beginning to integrate strategies that are

being developed by banks and brokers in the futures and

foreign exchange markets.



In the pursuit of speed, traders are reducing the use of or

entirely eliminating trading by phone or fax. They also realize

that proprietary trading systems impose too many restrictions

and limitations. Fortunately, the widespread adoption of the

FIX protocol has provided a common routing platform that

enables traders to connect to each other and to global currency

markets.

The question then is not whether to use technology in FX

trading, but what platform is most effective in terms of cost,

speed, security and reliability. From this perspective, there are

two basic options to consider: the standard Internet and secure

Extranets. A review of both will eliminate some inaccurate

preconceptions and provide a solid understanding of the pros

and cons each has to offer.

The Internet

It is not necessary at this stage to recount the many obvious

benefits of the Internet. The low cost of entry, its ubiquitous

global coverage and lack of significant restrictions have sparked

revolutions in personal communication and innumerable areas

of the business world.

But a key misconception is that “the Internet is free,” or at least

far cheaper than other alternatives for electronic transactions.

The very nature of an open network means the Internet

provides a haven for hackers, thieves and others who simply

cannot be allowed to access a trading network. To guard

against interlopers, trading partners need to use expensive

software, firewalls and other means to protect the integrity of

the trading environment. This often results in the need for

separate, costly Internet installations.

What’s more, in its normal operating state, the Internet does not

provide the level of reliability, security and privacy required for

completing time-crucial, mission-critical transactions. During

the normal course of data transfer, packets are dropped and time

lost. In a trading environment where precision and fractions of

seconds are critical for the most advantageous rates, there can

be no tolerance for missing packets or re-transfer of data.

Even more extreme scenarios exist. Everyone who uses the

Internet on a regular basis has experienced security breaches

that grant access to secure sites by casual surfers, server

meltdowns or traffic so congested that data transfer comes to a

complete halt. “Denial of service” is in no way compatible with

a trading environment that relies on technology for speed and

reliability. The public Internet therefore presents numerous

obstacles to traders today.

“In order to approach the appropriatelevel of reliability, security and

protection against external attacks viathe public Internet, significant costs

must be added to the bill.”

Another drawback is that multiple providers are involved in

the construction and deployment of public networks. In

seeking out the most direct and cost effective network

blueprints, these entities may deploy network cabling and

switching equipment in the same facilities as other providers.

Those involved in foreign exchange trading now findthemselves facing the same challenges that equitytraders encountered in recent years. They need to findoptions that allow faster trading and delivery of data byan ever-expanding market that includes the traditional FXtraders and an array of newcomers, such as hedge fundsand regional brokers.

Extranets: Providing a secureframework for eFX

Alan Schwartz is SVP andGeneral Manager, Financial

Services Division, TNS


>>>

With multiple network providers co-located in similar venues,

there is little if any possibility for the redundancy necessary to

provide for network connectivity during disaster scenarios or

network outages. In order to approach the appropriate level of

reliability, security and protection against external attacks via

the public Internet, significant costs must be added to the bill.

As the price of these additions rises, the appeal of the “free”

network declines.

Extranets

As an alternative to the Internet, an Extranet combines the

technology of the Internet with tight security protocols. In

addition, Extranet providers manage the technology that

underpins electronic trading, allowing customers to focus on

software applications and other critical issues that pertain to

their internal institutional trading environment.

But perhaps the most important attribute of an Extranet is that

it brings together only those parties that share a common

interest – in this case, FX trading. The leading benefit is self-

evident: the only people with access to the Extranet are those

who are supposed to be on it.

Additional benefits also exist. Because of the secure nature of

the connections within an Extranet and because of a greater

commitment to network management, reliability is dramatically

increased. The widespread use of service level agreements

(SLAs) mandate a high level of management and performance,

both essential to a mission-critical trading environment.

Because the business needs of the trader are known by the

Extranet provider, necessary bandwidth is easily managed. This

allows for effective cost controls over business conducted over

the Extranet.

“perhaps the most important attribute of an Extranet is that it bringstogether only those parties that share

a common interest”

While it is possible that the basic costs for using an Extranet

could be higher than using the Internet, the scale begins to

balance when heightened security, reliability and more effective

network management are factored in.

It should be pointed out that not all Extranets are created equal.

Key questions to ask when reviewing an Extranet option are,

“Who owns the network? Does the provider own all of it? Can

the provider quickly add new trading partners to the network?

Who manages the network? Who has access to the devices

serving as the backbone of the network? How private is the

network and who’s on it? Does the network provider provide

encryption as a part of their offering?”

Given that most trading partners lack the same internal level of

technological skills and capabilities provided by an Extranet

provider, there is an expected payoff for traders in terms of level

and speed of service, security and reliability by using an

Extranet. It is important to maximize these benefits when

making the move.

Connectivity is the first item to review. While neither an

Extranet nor an Internet connection to a trading partner will

likely be created instantly, it can be done with an Extranet in a

matter of a few days and even faster if a customer is already

“on-net.”

It is important to remember that a “secure, reliable” Internet

connection is not available instantly. In many cases, the race

to secure an Internet hookup versus Extranet service ends in

a dead heat, with Extranets even coming up faster in

many scenarios.

In order to fully achieve the benefits of an Extranet, consider

high-level security options. This would include a level of

transparency to mask or secure the actual host trading

equipment or the actual trade on the network. Examples of

this technology are network address translation (NAT) and

encryption, which both provide anonymity and privacy in the

trading process.

Point-to-Point

While we have focused primarily on the pros and cons of the

Internet and Extranets, we should briefly mention a third option

for connectivity in trading environments: point-to-point leased

lines. While point-to-point does provide a dedicated circuit that

is available at all times and can handle as much data as needed,

this option offers significant challenges.

The expense of operating these lines – especially those requiring

an international connection, the need to manage separate

connections, and the absence of full-time, high-level tailored

support – have combined to eliminate point-to-point as a viable

option.

Getting Started

One of the sure signs of success of any product or idea is that

it generates more and better benefits for those using it. This

is true in electronic currency trading and is especially so

regarding the use of Extranets.

Quite simply, when traders are happy with their network, they

do more and more with it, which comes as a result of the

commonality of the process. With the FIX protocol

standardizing the process, investors connected through a

leading secure Extranet often find that other individuals or

divisions within their firms have a desire to execute other

types of trades with each other.

Therefore, an Extranet established for equity trading or

sharing of market data may very well lead to increased use by

partners for FX trading, with minimal need for additional

configurations or changes to SLAs.

Extranets: Providing a secureframework for eFX

july 2004 e-FOREX 79

Cross-Product Multibank Portal

with

Integrated In-House Trading

For more information please

contact:

Christoph Perger

360 Treasury Systems AG

Kennedyallee 34

D-60596 Frankfurt a.M.

Email: [email protected]

Tel: +49 69 900 289 32

www.360T.com

In many banks and financial institutions, e-trading systems inplace today are very static, linear and lack a lot of the flexibilityand interoperability initially desired. Particularly, it is difficult fora bank to aggregate its entire tradable liquidity into one singlevirtual market and for traders to have a unique view of theaggregated market depth they can trade on, while controlling thequotes they broadcast to their clients and managing, in return,the auto-crossing conditions of the clients’ orders and interests.

The key is to create a single internal market that can let ordersbe matched against an aggregated liquidity pool, according tocustomizable rules, and that can show a unified market depth forall markets (internal and external). Such a virtual market mustbring a common access layer for all the types of liquidity, beadaptive to the constant changing cartography of liquiditysources, distribution channels, trading modes, messages types,instrument classes, client-facing and order-entry applications,while maintaining a unique and harmonized silo where theliquidity is maintained. In parallel, the core structure andarchitecture of the platform must support the changes that areconstantly carried out on the delivery channels and on thepricing sources.

As a solution to this equation, Smart Trade Technologies hasdeveloped a private order-routing and order-matching platformthat banks and financial institutions can deploy as a softwarewithin their infrastructure. The Smart Trade platform iscomposed of one or several inter-connected platforms, able tocommunicate with various external liquidity sources, deal withcustomizable orders types, rules-based routing and executionconditions, message protocols, internal data referentials, client-facing and order-entry applications, symbology translationissues, external permissioning. The Smart Trade platformconstitutes eventually a flexible single sign-on trading network,that the bank controls functionally and technically, integrateswithin its own IT teams and that remains stable and evolutionaryover time. Its performance and throughput are in line withtoday’s and tomorrow’s requirements emerging from the highlydemanding clients and program trading engines.

The design of the Smart Trade platform’s architecture has been

built around a few core concepts:

• extremely robust routing and matching engine

• Gateway Framework to build specific connectors to

external liquidity sources

• exhaustive APIs to support and build multiple types

of client-facing and order entry applications

• independency to the asset class, and the

instruments quoted

• compatibility with any type of order and trading

mode

• central order book:

• integration of credit limits:

• integration of customer spread management/ price

tiering

• connection to third party data referentials


The Smart-Trade platform(s):a private virtual market inside the bank

For more information contact

[email protected] : +33 1 44 50 19 19

www.smart-trade.net

29 Rue Danielle Casanova

75001 PARIS - France


Prime Brokerage – a mature business

The essential offerings and benefits of Foreign Exchange Prime

Brokerage are clear. At its core it allows a fund to trade with a

much wider variety of counterparties, without the need to set up

lines and collateral with each trading partner. This facilitates best

execution across a range of currencies and products.

Furthermore a Prime Broker will take care of the clearing,

settlement and bookkeeping, allowing the fund to focus its

energies, and capital, on trading strategies. Finally the Prime

Brokerage relationship offers a reduction in settlement risk

through the netting of payments through a single counterparty.

Unprecedented increase in trade volumes

The number of clients and the volume of trades have grown

dramatically and will continue to do so. Firstly hand institutional

investors have increased their allocations to currency funds.

Active currency management by skilled investors is seen as an

attractive source of alpha. Secondly the adoption of electronic

trading, the proliferation of ECNs, and the adoption of automated

trade processing systems by banks has dramatically reduced the

costs associated with trading. Per trade fees have dropped, and it

has become profitable to trade in much smaller lot sizes.

With the Bank of International Settlements sizing the daily

turnover of the FX market at $1.9Trn, and with Hedge Funds

accounting for 20% to 25% of this business, one can size the

FXPB market at $380Bn to $475Bn daily turnover. An average

trade size of $5MM to $10MM this would represent a low water

mark of 40,000 trades a day up to 100,000 trades a day.

The reduction in trade size to $1M, afforded by ECNs, drives up

that potential volume to 500,000 trades a day.

More participants, more assets under management, lower trade

sizes, more channels, equals greater number of trades. Without

the appropriate controls and automation, however, growth will

bring increased risk and prohibitive costs. These heretofore

unseen volumes can only effectively be processed using

automated solutions. Automation not only Prime Brokers

operation, but of the bank to bank communications, allowing

executing banks and ECNs to electronically route Give-Up trades

to Prime Brokers. Traiana’s Harmony™ has become the de facto

industry standard to support this Give-Up processing.

S P O T L I G H T

Automating FX Give-Upsin an Electronic Age

Prime Brokerage is now an established, mature product in the global foreign exchangemarket. Two or three years ago FXPB was a emerging business, with ad-hoc servicesbeing offered to a handful of clients. Now the leading Prime Brokerage firms are offeringtheir services to dozens of firms, with the largest having close to one hundred clients andprocessing several thousands of FX transactions a day.

>>>

WYCIWYGWhat You Click Is What You Get

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• Consistent liquidity

• Integrated real-time

charting

• Integrated real-time

statements

• Detailed real-time margin

analysis

• Full market resources

• Proprietary dealing software

• 3 pip spreads on all major

currency pairs

• 1% margin trading

• 24 hour dealing

• Instant execution

• No request for quote

• No slippage

• No commission

Advanced Currency Markets is a primary market maker offering both individualand institutional customers the most competitive, instant execution, online fxdealing facilities in the marketplace.

You can reach ACM representatives at the following numbers and addresses:Main switchboard +41(22)3192200Customer support +41(22)3192203 [email protected] development +41(22)3192204 [email protected] desk +41(22)3192205 [email protected]

In the eighteen months since Harmony’s launch it has grown

from three initial participants to a network encompassing 20

Banks and ECNs.

The benefits of automating give-ups are clear:

• Reduction in operational risk

• Reduced processing costs

• Elimination of errors due to re-keying

• Improved oversight and control

• Provide real time trade status information to trading parties

and clients

Benefits to the buy-side

The strongest advocates of Traiana Harmony have been the

Prime Brokers’ customers. As their volumes have increased they

want to be able to see the status of their give-ups and credit lines

in real-time. This is particularly true of model driven traders

executing hundreds or thousands of trades a day. These models

that drive these trading strategies are often market neutral

arbitrage strategies. A trade executed, but not yet accepted, may

have an impact on the available credit line of that firm,

particularly if that trade offsets a position that is close to the

credit line.

Similarly firms using Virtual Weighted Average Pricing (VWAP)

strategies that split a single trade into a series of trades executed

throughout the day wish to see all of the trades in specific

currency pairs. Once again the timely reporting afforded by

automation provides better service to firms who need to see the

all accepted trades to be able to quickly verify data such as

average price.

Support for FX Options

As well as supporting, and facilitating, the increased volume of

FX trading Traiana Harmony is meeting the needs of brokers and

end users by enhancing the asset class coverage of products

supported by Harmony. As funds search for further sources of

alpha, they seek non-traditional markets where they can employ

directional or arbitrage strategies. In FX there has been an

increased use of options and other derivatives by leveraged

traders. Just as this is good news for funds seeking increased

returns it is good news for brokers. While options may only

represent 10% to 20% of FX volume, they can represent up to

40% of income. Traiana Harmony has been enhanced to support

Give-Ups of FX Options.

The inclusion of these products on Harmony removes a huge

source of error as the Inter-bank messaging of these complex

products is wholly manual.

Management of Tri-party credit limits

A further innovation of Traiana Harmony, planned for the first

half of 2005, is focused on helping Executing Banks deal in

greater volume with Hedge Funds and leveraged traders. Many

banks are interested in taking alternative investment managers

as clients, as they value the flow business that these firms

provide. However, they are not comfortable with the credit risk

exposure to Hedge Funds. Prime Brokers solve this problem as

they will provide delivery on the obligations of the fund in the

event of default. In that regard the Prime Broker will act as a

principal to the trade.

The Prime Broker will agree to take on a certain amount of

exposure, up to limits set out in a tri-party document; signed by

the fund, the Prime Broker and the Executing Bank. This

guarantees that the Prime Broker will accept the trade as long as

a line is not breached. This line is normally based upon simple

credit metrics such as Daily Settlement Limits (DSL) or Net Open

Positions (NOP). This guarantees that the Prime Broker will

accept the trade from the Executing Bank and take principal risk,

as long as the limit is not broken. This calculation is currently

being performed by the Prime Broker; in order to provide greater

visibility into this calculation Traiana is launching a version of

Harmony that will perform this calculation.

This will allow Executing Banks to monitor their lines with a

Prime Broker on a client by client basis, allowing them to

confidently trade with Hedge Funds in certain knowledge that

their trade will be accepted by the Prime Broker.

Conclusion

Increased volumes in the FX market require automated

solutions. Without automation participants will not be able to

scale their business to meet demand. Automation needs to occur

within the four walls of a firm, as well as between trading parties.

Traiana Harmony was launched as a scalable solution to handle

Inter-bank messaging of FX trades, since inception participation

and trade volume has grown significantly. The system has been

recently enhanced to support options and immediate future

plans will enable Executing Banks to monitor their tri-party credit

lines. The operational efficiency, reduction in risk, increase in

trade visibility and performance of the system are of benefit to

Hedge Funds, Executing Banks and Prime Brokers.

S P O T L I G H T


Trading Relationships Managed

We help you deliver first-class customerservice to your clients. Contact us to find outhow to get more customers and greatervolumes with a faster time to market.

New York – London – Chicago – San Francisco – Tel Aviv

www.traiana.com New York: +1 212 404 1714, London: +44 (0) 207 614 3540


Earlier this year CME’s FX on Reuters initiative

went live, providing Reuters’ global 18,000 user

customer base with, for the first time, direct

access to CME’s foreign exchange (FX) futures

and enhancing the ability to seamlessly trade FX

spot and futures. The service links the sell-side

traders in the interbank FX market, Reuters’

traditional client base, to CME FX futures

markets, where hedge funds and other major

buy-side participants, such as commodity trading

advisors (CTAs), play a major role.

While the FX futures space is still a small portion

of the FX world, it is rapidly growing. Last year,

average daily volume in CME’s FX complex

increased 50 percent to more than 200,000

contracts with a notional value of $24.4 billion.

With its three-year compound annual growth

rate of 112 percent on CME’s GLOBEX®

electronic matching platform, CME FX now

accounts for approximately five percent of the

overall FX market.

CME’s traditional buy-side customer base of

hedge funds and CTAs continues to fuel much of

this growth, deploying more assets toward

foreign exchange, which is now seen as an asset

class. Because of the need for bilateral credit

lines, this customer base sometimes has

difficulty gaining access to the over-the-counter

(OTC) market. Instead, the buy-side has

gravitated to CME’s futures markets because, in

addition to the elimination of counterparty risk, it

offers price transparency and anonymity. As

technology increases the universe of FX

participants, the elimination of credit constraints

is becoming an increasingly important part of any

execution platform’s value proposition.

The potential impact of bringing the two largest

pools of buyers and sellers into one unified

trading environment is enormous.

“Every one of our approximate 18,000 customers

using Dealing 3000 is an important source of FX

flow; but until now most have not been able to

find an easy way to execute futures,” said Mark

Robson, Global Head of Treasury and Fixed

Income, Reuters.

“Now Reuters and CME are effectively turning

these nearly 18,000 keystations into portals that

link the key cash and futures liquidity pools and in

doing so we can enable the whole marketplace to

electronically talk the same language. The impact

on volumes should be catalytic from early on, then

as liquidity deepens and becomes more consistent

you can foresee it taking a further step, as turnover

reaches a new critical mass capable of supporting

the pent-up demand for program trading.”

Bridging the Gap

CME’s FX on Reuters initiative brings together

these two previously disconnected trading

communities to the benefit of both. Banks, as

liquidity providers, now will have access to a

broader customer base with CME’s clearing house

serving as a central counterparty. Bank traders

can now access the rapidly growing FX futures

trading market, approximately half of which is

comprised of hedge funds and CTAs, with

proprietary traders, trading arcades, and even

individuals playing a significant role. In return,

bank traders can bring the depth and liquidity of

the larger cash market to the futures markets.

CME FX onReuters -Combining thebest of two worlds

Rick Sears is Managing Director,

CME Foreign Exchange

“Every one of our

approximate 18,000

customers using Dealing

3000 is an important

source of FX flow; but

until now most have

not been able to find

an easy way to

execute futures”

Mark Robson


>>>And this liquidity pool is formidable: The Reuters

FX trading community consists of some nearly

18,000 users in more than 4,000 organizations in

110 countries. As buy-side participants enter and

exit large risk positions, many place great value on

anonymity, a key principle of the central counter-

party model. With CME FX on Reuters, all trades

are anonymous. While it will bring the buy and

sell sides together, neither party will know

specifically which counterparty they are dealing

with. ”Regardless of the asset class, being able to

enter and exit a large position without letting

everyone else know what you’re doing is critical in

the hedge fund world,” said Joe Herder, Head of

Trading, Conquest Capital, a New York-based CTA.

CME on Reuters is designed to allow users to

move seamlessly between the OTC and futures

markets. CME FX on Reuters allows traders to

input their own forward points and work back

and forth between CME FX futures and spot

market equivalent prices. These points equate

the spot price of a currency with its futures price.

Input of forward points can be executed either

manually or, in the near future, through an API

provided by Reuters.

Application Overview

The “look & feel” of the CME FX on Reuters

display blends with that of the Reuters Dealing

3000 desktop. The system can be configured to

include the CME FX price panel in which CME

FX futures prices will be displayed in standard

OTC terms.

Displaying a futures price in spot-equivalent

terms will provide Reuters Dealing 3000 bank

users with a quote that they are more familiar

with and will make it easy to compare prices

between the two markets. Customizable

application display panels include the market

grid, the forward points entry, the depth of

market, buy and sell tickets and both open

orders and archive blotters. The market depth

panel shows the top five bids and offers and

their associated trade sizes.

Trade requests will be entered from the CME FX on

Reuters platform in notional sizes and at spot

equivalent prices, or the futures price minus the

forward points. Spot equivalent trade requests are

routed to the Reuters datacenter; the initial release

will only support limit (“work balance”) order. The

underlying futures price (the spot equivalent price

plus the forward points) is then routed to the CME

FX electronic trading engine. Active orders are

displayed in the Open Order blotter, and the

percentage of the order filled is tracked in the order

display. Once the order is completed or canceled,

it is added to the Archive blotter.

Straight-Through Processing

CME FX trade executions are then routed via the

Reuters Ticket Output Feed (TOF) system to bank

real-time position management systems as either

a futures trade only (as a forward outright) or as a

futures trade plus a spot trade. In a deal generated

via TOF as a futures trade only (forward outright),

the trader executing CME FX deals will manage FX

futures positions as forward outrights.

”Regardless of the asset

class, being able to enter

and exit a large position

without letting everyone

else know what you’re

doing is critical in the

hedge fund world”


CME FX on Reuters - Combining the best of two worlds

CME FX futures deals will be confirmed with the

CME as the counterparty. The trade price

recorded will be the price of the future (or forward

outright), and will be equivalent to the spot

equivalent price plus the forward points.

In a deal generated via TOF as a futures trade plus

a spot trade, the trader executing CME FX deals

will manage the spot risk and assign/book the

forward swap with an FX forward trader. The CME

FX futures deal confirmation will have two parts,

one for the spot trade and the other for the FX

outright trade. All trade tickets will be cross-

mapped by a correlation identification number.

The trade price for the spot component of the

transaction will be the spot equivalent rate in the

trade request, the futures price minus the forward

points. The counterparties are the trader who

executed the CME FX futures deal (in spot

equivalent format) and the FX forward trader who

quoted the FX forward swap. The trade price for

the FX forward outright (CME futures) trade will

be routed to the forward trader and will be the

price of the underlying futures (or forward

outright). This price is the spot equivalent price

plus the forward points.

Trade Routing Overview

Clearing firms have two routing options for routing

orders between the Reuters datacenter and the

CME Globex matching engine. The first is to sign

up for a new CME gateway hosted by FFastFill, a

CME-authorized independent software vendor.

This gateway was developed specifically as a

turnkey solution to facilitate clearing firm routing

of customer trades. This second option available

to CME clearing firms is use of an existing CME

gateway. This choice requires development of a

new link to the Reuters API; specifications are

available from Reuters with both CME and Reuters

providing support.

Direct electronic access to CME FX markets for

non-member firms is facilitated by authorized

CME FX on Reuters clearing firms. Non-member

firms’ access to the trading application requires

the CME FX trading applet to be delivered to the

Reuters desktop. The clearing firm provides trade

routing between the Reuters datacenter and the

CME Globex engine and may charge a fee for this

service.

CME clearing firms may sign on to the CME FX on

Reuters system to directly route both in-house

and customer trades. As was the case for non-

member firms, the CME FX trading applet can be

delivered via the Internet to the Reuters desktop at

no charge to either the clearing firm or the end-

user/trader.

Customers are responsible for any costs

associated with accessing the CME FX applet over

a managed circuit/Radianz line. Clearing firms

provide trade routing between the Reuters

datacenter and CME Globex and

are responsible for the costs of

either writing to the Reuters API

for trade routing, including line

costs, or subscribing to the

FFastFill managed service option.

CME FX on Reuters combines the

two worlds of FX trading with

speed, flexibility, liquidity,

technological efficiency and

market integrity. It will create even

greater trading opportunities by

directly linking two of the most

liquid, centralized FX marketplaces

in the world. The result for

participants, on both sides of the

market, will be a more dynamic,

deeper and efficient FX market.

“CME FX on Reuters

combines the two

worlds of FX trading

with speed, flexibility,

liquidity, technological

efficiency and

market integrity”


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With a daily $1.9 trillion, round-the-clockmarket, e-forex offers unparalleledliquidity and trading opportunities for alllevels of traders. And as trading volumescontinue to grow exponentially, a varietyof niche players are creating new liquiditydestinations that market participants cantap into. In turn, traders are seekingflexibility, speed, automation, andinnovation on the part of their electronictrading platforms so they may participatein multiple venues with ease.

Meeting an increasing demand for trading power

and tools, with choice of broker

Whether looking to diversify their portfolios,

hedge, or simply switch to an asset class with more

favorable returns, participants with wide-ranging

trading experience in other asset classes now trade

e-forex. Used to having an arsenal of trading

options and real-time research and analysis tools at

their command, this new generation of e-forex

traders demands that their forex trading platform

offer the same power. And many have turned to a

trusted ally for the solution: the RealTick® trading

platform from Townsend Analytics (TAL).

A true multi-asset class, broker neutral, market data

and direct-access trading platform for North

American and European markets, RealTick enables

trading of forex, stocks, futures, options, and fixed

income instruments seamlessly from a single

application. It is independently owned by

Townsend Analytics and available through multiple

brokers.

While trading technology firms have gone through

a great deal of consolidation over the last few years

mainly through acquisition by sell-side institutions,

Townsend Analytics continues to remain

independent, allowing its clients full multi-broker,

multi-route, multi-clearing firm capability for

ultimate flexibility and anonymity when placing

trades.

Open access provides more choice for traders

An industry innovator since 1985, Townsend

Analytics believes in open access to the markets

enabling customers to realize “infinite

possibilities” in their trading. This technological

legacy and steadfast philosophy are inherent in

every aspect of trading e-forex and other asset

classes through RealTick.

Open access allows traders to choose a broker

based on such as criteria as service, commissions,

and specific expertise, rather than being forced to

use a specific broker who owns or sponsors a

solution. By joining the Townsend Analytics

Service Bureau, clients can even get full access to

multiple brokers, routes, and liquidity destinations,

enjoying greater flexibility and anonymity than

with any other platform. This is a fully outsourced

trading solution offering a range of mid-office,

back-office, and risk management tools in

conjunction with the RealTick platform.

Michael J. Felix, Director of Marketing, Townsend Analytics, Ltd.

Open Access and UnbiasedFlexibility for Forex Traders

Sets RealTick® Apart

Viewpoint is a column in e-Forex where we invite organisations, companies and individuals to comment on eFX

and FX trading issues. Please feel free to write to us with your own views on these contributions as well as suggestions for other topics.v

iew

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The power of advanced order types and algorithmic

trading capabilities brought to FX

Building on its legacy for innovation, RealTick hasbrought its popular advanced order types to forex.Conditional orders, trailing stops, Best Bid/Best Offer,and many others, provide traders with enhanced tradeopportunity discovery, arbitrage, hedging, and riskmanagement capabilities.

The conditional order feature is especially powerful inRealTick, as it enables automatic triggering of tradesbased on combinations of forex rates, prices for otherasset classes, index levels, canned or user-definedstudies and formulas, and any other data elementpowered by the robust TAL data feed, which is directlyconnected to the world’s exchanges, ECNs, and otherliquidity destinations.

For example, an order can be triggered whenUSDJPY<100.00, the DJI >11,000 and SNE<$37, alongwith any other combinations.

Traders can also link the real-time data to theirMicrosoft Excel® spreadsheets via a DDE link. Goingone step further, they can access the TAL API to feeddata to their own custom blackbox models, which canthen automatically send orders directly to RealTickthrough a powerful order scripting feature. Thesetypes of trade automation capabilities are justbeginning to take hold in the e-forex world, but oncetraders realize the benefits, the tide will shift evenfurther toward full electronic trading.

RealTick also allows for comprehensive worked(staged) orders capability. RealTick's worked orderfeature allows traders to create electronic "tickets" thatenforce the side, symbol, quantity and price of a bulkorder that needs to be executed. Regulation time-stamps and fill information are stored as the ticket isworked until completion. Worked orders can be appliedto individual orders or entire baskets. This has been anespecially popular feature for the buy side and can beused for all available asset classes, including forex.

A native algorithmic trading feature called “Slicer”can be applied to individual orders or baskets, and canalso route to external algorithms offered by sell-sidebrokers and aggregators. This can be especiallyuseful when working large orders.

Full-strength risk management and real-time research

and tools round out the package

For the ultimate in convenience, traders canconsolidate all of their various accounts, by broker,currency, or asset class within RealTick’s VirtualAccount Manager. Risk Analyzer, a full-featuredaccount risk analysis tool, enables pre-trade riskanalysis as well as true real-time margin analysisacross asset classes.

This gives traders a truer picture of risk than end-of-day and other non real-time data reported by clearingfirms and other providers.

A hallmark since its inception, RealTick also offers awhole host of quote, charting, technical analysis,news, fundamental research and analyticalcapabilities, providing the trader with a full suite oftools in one single, comprehensive platform.

Seamless access to multiple forex venues

In line with its flexibility across all other aspects of theplatform, traders can access multiple e-forex liquiditydestinations through RealTick to best fit their tradingneeds and strategies. The Hotspot FX foreign exchangemarketplace provides customers with direct tradingaccess to live, executable spot foreign exchange pricessupplied by banks and other financial institutions as wellas the ability to enter their own bids and offers--inside,outside, and at the current spread--all anonymously.Hotspot FX’s participating banks are among the top-rated global financial institutions, providing ongoingliquidity and a virtual clearinghouse network.

Customers can also use RealTick to route to UBS, theworld’s leading foreign exchange dealer. This isespecially popular with treasurers and corporationswho have a delivery need. In addition, customers canalso access the Currenex multi-bank foreign exchangenetwork and FXCM, the world’s largest non-bank FCMthat specializes in spot forex. RealTick also providesforex data from a variety of sources including GTIS.

Full depth of book, where available, can be viewedthrough a RealTick market depth window, and traderscan see their orders displayed using the “My Order”function. User-programmed shortcut keys areavailable to bump orders up or down using thisdisplay, and all orders can be viewed on charts as well.

This is just a glimpse at the technology available to e-forex traders today. While the ability to tradeelectronically has forever transformed equity, futures,and options trading, forex participants are justbeginning to realize this potential and the comingyears promise to take this to an entirely new level.

On the technology side, it’s important for traders toentrust their e-trading to a platform which offerscomplete, unbiased flexibility and adapts as themarket moves in new directions. And by choosing asolution from a truly independent software vendor(rather than a single broker), traders are assured acompany commitment to advancing technology andkeeping traders firmly in the driver’s seat.

RealTick is a registered trademark of Townsend

Analytics, Ltd.

� We are a fairly small financial institution who need to

deploy FX technology but don’t wish to make a

substantial investment in developing our own e-trading

platform. Should we consider choosing a technology

vendor or another bank to supply a purpose built e-

commerce platform?

A convenient and seemingly cheap solution are a number ofwhite label offerings from individual market makers, alsoknown as the ‘bank-for-banks’ model. Some proprietarysingle-bank trading platforms allow multi-level roll out,meaning that smaller banks or large buy-side organisationscan roll out a secondary layer of this bank’s trading platformunder their individual name and logo to their own clients orinternal subunits. While at first glance the feature provides avalue added service – often free of charge – it can be arguedthat such deep vertical integration with their clients’ internalprocesses helps large financial institutions to consolidatetheir role as your 'default' liquidity source. Thus, manysmaller banks and buy-side organisations are hesitant toallow individual market makers to drill down into theirinternal processes. Some also expect to be faced withsignificant exit barriers in their free choice to change liquidityproviders. Key rationales of modern business science are toavoid single-sourcing, to focus on core competences and toreduce the depth of ones value chain.

According to this, a bank should focus on providingcompetitive pricing and quality advisory, whereas aspecialized technology firm should take care of its electronicdelivery. You might therefore prefer to have a directrelationship with an independent White Label technologyprovider to remain independent and flexible in the choice ofyour price sources. As far as costs are concerned, anindependent technology provider will not offer their WLtechnology for free, but centrally hosted, web-based servicesare generally offered at favourably low rates.

� How important is it that a White Label (WL) provider

owns the technology supplied to us rather than a third

party supplier?

Quite important. Despite all allegations, there are no 100%standard or ‘plug-and-play’ solutions in this business. Thishas to do with your individual workflows and mapping theseparticular business processes electronically. The furtheraway you are in the supply chain from the actual technologyprovider - because your WL provider might not physicallyown and maintain the technology they distribute to you - thesmaller will be your impact on integration, customizationand individual support, required to deliver a quality serviceto your own clients.


Thee-Forex Surgery

FX White LabellingWith Katrin Lütjens, Senior Product Manager at 360 Treasury Systems AG (360T)[email protected]


� We are concerned about the costs of adopting a WL

service. After paying the initial costs are we going to be

faced with substantial ongoing costs to cover

maintenance and application hosting charges etc?

The application service provider (ASP) model reduces or

eliminates one-off costs associated with former proprietary

system implementations. In the case of a hosted ASP

infrastructure, your basic operational costs are likely to

consist of only a modest monthly fee per connected client

entity. However, additional setup and maintenance costs are

highly dependent on the desired depth of integration with

your existing technology environment. Interfaces to your

proprietary pricing engine, position keeping, risk

management and legacy systems, should be considered

both as setup costs and in their ongoing maintenance.

� How much disruption to our trading desks and operations

should we expect to occur when implementing a WL e-

trading solution?

There shouldn’t be any disruption. The WL e-trading solution

is usually a browser-based applet and, like web-based

applications in general, has an implementation effort of only

a few minutes at the individual work place. Intuitive logic of

graphical user interfaces allow for a self-explanatory

introduction, which consequently minimizes or even

eliminates the need for user training on both sell side and

buy side. The availability of an interactive demo site, to get

familiar with the whole scope of functionality and workflow,

also provides a good introduction and training environment.

� It is important for us to maintain a high standard of service

offering on a 24x7 basis to our clients. What sort of service

level agreements should we expect from a WL provider?

A service level agreement for a WL e-trading platform includes

the maintenance of the highest operational reliability with

permanent checks of all interoperability elements. It should

address the automatic delivery of updates and upgrades,

guided user introduction, first level and second level helpdesk

support and e-mail notification services. Response time

tolerance should be fixed in an escalation process document.

� As a bank we have a number of different client segments

to service ranging from corporates to institutional

customers. Are WL solutions flexible enough to cater for

their different trading needs?

The WL platform of your choice should then be based upon a

flexible underlying technology which has been developed for

the needs of more than just one specific target group. Such

technology can be configured in a modular, segment-specific

way, allowing plug in of specific purpose-built functionalities

for certain types of user groups. For instance, a corporate

might require a request-for-quote type of cross-product

trading, whilst institutional clients might be interested

in click-to-trade FX execution on streaming prices and

pre-trade netting of transactions on behalf of several

individual portfolios.

A WL e-trading platform should also be capable of integratingseveral individual pricing sources or a Multibank Portal forback-to-back execution on competitive ‘best price’, forinstance, when your clients request currencies, products,notionals or maturities in which you want to provide qualityservices, but selectively choose not to run your own books.

� At present we only have a requirement for some FX e-

commerce services. Are most WL solutions customisable

so we can choose whether we want to implement a full

trading capability or just some back-office processing

activities for the time being?

The configuration of your trading platform should always beflexible enough to be adapted to the actual products youwant to offer. The WL e-trading platform should on the onehand offer a wide range of OTC products and on the otherhand enable you as market maker to define whether yourservices should include only basic FX requirements like spotand forward, or even a broader range of vanilla FXinstruments, including swaps and options. Possibly, you willalso want to offer money market trading or other types ofstandardized OTC products, such as interest rate derivatives,fixed income or even commodities. It is of vital importancefor sophisticated WL technology providers to continuouslydevelop their systems in such a way, as to be easilyconfigurable to the actual requirement profile of theirindividual client, whilst reflecting the latest range ofinstruments, functionality and mechanisms of a fastchanging market environment.

� What sort of features and functionality are typically offered

by FX WL solutions that span the entire FX value chain?

Working along the trade lifecycle, the availability of differenttrading mechanisms would certainly be of great importance,enabling click-to-trade, single-side quote request, two-wayquote request and limit orders, including stop loss/takeprofit, or one-cancels-other. A sophisticated FX WL solutionwould want to allow for portfolio trading, including uploadand netting functionality. On top of basic requirementsregarding price offer, trade execution and deal blotter, value-added features can be electronic confirmation andsettlement and STP solutions to downstream systems. In theextended lifecycle of an executed transaction, ‘roll over’ or‘early settlement’ functionality provide additional benefits tosome customers. Interactive aging schedules andcustomizeable reporting are also on the typical wish list.

� We are very security conscious. What sort of security

measures should we look for in a white label service?

The access to the WL trading platform should always besecured by state-of-the-art authentication processes.Normally it will be a combination of public key infrastructure(PKI) and digital signature technology whereas the userinterface will be accessible via user name and password. Acommunication between applet and server via publicInternet must use industry-standard encrypted internetprotocols, such as SSL, in order to guarantee confidentialityof all critical traffic to and from the server. Further securityescalations like leased lines, smartcard or even biometricaccess control are possible.


Two years ago some were predicting the

demise of single-bank trading platforms.

That hasn’t happened and there’s renewed

interest in these offerings. What’s driving

this and why are banks continuing to

operate and develop their proprietary FX

trading platforms?

Smith: Clients are continuing to use

bilateral trading platforms for a number of

reasons. For some, the main driver is to

have a direct relationship with HSBC,

whilst for others it is that they require a

bespoke solution and we are willing to

offer modifications to our platform.

Perhaps the most important reason for the

success of HSBC’s bilateral platform is

down to the bundling of services within

one portal. Clearly, the trading of FX is

only one of a number of client activities.

HSBCnet (HSBC’s portal for Corporate,

Investment Banking and Markets clients)

has been built to provide one point of

access to trade FX and Money Markets,

access research, trading ideas, FX options,

FX flow analytics, FX charting and Fixed

Income pricing. HSBCnet also hosts Cash

Management reporting and payments,

Securities and Trade Services. Rather than

HSBC simply offering a stand alone FX

trading platform, HSBCnet allows clients to

simplify workflow.

Van den Heule: Proprietary FX tradingplatforms allow banks to differentiatethemselves from others in the market. Thebetter single bank platforms have superiorfunctionality that can be tailored to theirclient’s requirements more directly. Due toincreasing price transparency there is nowminimal benefit to using multibankchannels as the price shown to each clientis the same irrespective of the channel.The marginal cost of using a proprietarychannel is also much lower as there is nobrokerage to pay.

Burns: As always, our customers drive ourdevelopment efforts. The universe ofpotential users continues to grow as moreand more customers become comfortablethat online trading platforms can providefast, consistent and competitive pricing. Inaddition, single bank platforms offer theability to effectively connect to otherproducts within the institution, therebydelivering a more targeted, holisticoffering – providing greater ease of useand true STP.

Bouet: The reality is that banks are alwaysgoing to give the priority to their ownplatform and that multi-dealers platformsneed the support of the banks to besuccessful. Customers can only benefitfrom this situation.

Thus, Calyon is a shareholder of FXall andwe participate to other multi-dealerplatforms because we consider that theycomplement well our proprietary e-FXplatform (Aquarius). There are so manydifferent clients with so many diverserequirements that there is not one solutionwhich can address them all on the sameplatform. You cannot service a corporatetreasurer who is looking for a high degreeof account management the same way as asystem-driven CTA trader for instance.

Severn: The current drive towardsautomation in the FX industry has requiredbanks to be flexible in their ebusinessofferings in order to meet their objectivesand satisfy client needs. For many clients,the use of a SBP remains the optimumsolution – for example, many medium andsmaller corporates as well as some local orregional banks and NBFIs. Banks have fullcontrol over their SBPs and therefore theycan be more easily tailored to meet theneeds of specific clients or groups ofclients. Development is often faster andmore flexible due to the control that thebank has over the software. In addition,the SBPs can be integrated within thebanks’ other e-banking platforms, soproviding customers with an integratedsolution. Another factor influencing thedynamic is the buyside charging structureintroduced by some third party portals.Clients unwilling to pay will be more suitedto a SBP provided to them free of charge.

The e-Forex RoundtableSingle bank platforms – offering clients innovative, multi-product capabilitiesWith Jake Smith, Global Manager, e-Commerce, Global Markets at HSBC, James Van den Heule, Head of FXLiquidity Services at Barclays Capital, Carissa Burns, Managing Director and Global FX Sales Manager atWachovia, Christian Bouet, Head of e-business at CALYON Capital Markets Division and Martin Severn, GlobalHead E-Sales, Global Markets at Standard Chartered Bank.

James Van den Heule

Jake Smith

Carissa Burns


The word “partnership” is increasinglyused when describing how larger buy-sideclients are working with their FX providers.Are these closer working relationshipslikely to increase the pressure on the multi-bank portals, particularly if they don’t getthe big ticket deals as a result?

Smith: Our large buy-side clients require aminimum of fast, consistent pricing in awide variety of currency pairs on a 24-hourbasis, allowing them to trade when theychoose. The multi-bank portals arecontinually trying to satisfy these clientsthrough the introduction of liquidityproviders and the addition of specificservices, with the view of increasingturnover. The pressure on multi-banks islikely to increase, as clients request morebespoke services. However, if the multi-banks support the basic provision of 24-hour liquidity and competitive prices, themajority of clients will be satisfied. In myview big ticket deals will continue to bedealt over the telephone as clients feelthere is greater confidentiality, discretionand trust, that can give them additionalcomfort at execution – rather than quoting5 banks in competition. The multi-bankswill be satisfied only if clients continue toincrease their turnover, on which theportals can charge brokerage.

Van den Heule: There will be somepressure on the multi-bank portals but forthe most part they will still be seeing thehigh turnover, vanilla business that theywere designed to transact.

Burns: Yes. FX has become its own assetclass for the buy-side and the desire toinvest globally will only continue to grow.As that happens, the needs of the buy-sidemove beyond price and execution toincorporate research and a need for their

FX provider to understand their investmentstrategy well enough to provide value-added ideas to enhance returns. Multi-bank platforms that only focus onachieving best price not only lessen aninstitution’s incentive to be a value-addedpartner, but also lack a more sophisticatedcross product suite.

Bouet: Yes of course; like the developmentof customised APIs, but still I believe thatmulti-bank portals have done an excellentjob in developing new functionalities forthe large buy-side clients. For instanceFXall is releasing many new excellentfeatures targeted to the asset-managerworld. As the multi-bank platforms do nothave true relationships with clients, theyhave to focus on their core competitiveadvantages, which are best execution andadded-value functionalities.

Severn: Any business practice thatreduces volume or ticket numbers throughthe third party portals, or in other wayslimits their growth, will clearly putincreased pressure on the portal providers.Yes, banks like Standard Chartered work inpartnership with clients but in ourexperience, there is still significant andgrowing demand for businesses to betransacted over certain portals, includinglarger deals. Working in partnership andutilising multi-bank portals are notmutually exclusive..

In what way can the functionality of e-toolsand customisation of single bank platformshelp to meet the requirements of anincreasingly diverse client base, withdifferent trading styles and so provide an attractive alternative to the multi-dealer sites?

Smith: The main point is that tools

should be customised to the level of

individual users. Whist looking at

trading, for example, HSBC can provide

both streaming and non-streaming rate

services, depending upon the requirements

of the client. Some may prefer constantly

streaming rates in the currencies of choice

(to see the price available to them at that

time); others may require that any trades

are dealt without reference to specific rates.

An example of this occurred recently when

a company Shared Service Centre

requested that all subsidiaries traded their

FX online. They specifically asked that

subsidiaries did not have streaming rates

as this could potentially encourage the

subsidiaries to wait for better prices on

individual trades. Some clients require One

Click Trading (dealable streaming rates),

whilst others may need Request For

Stream, or a combination of both. Limit

Orders are configured on a per user basis,

as are Money Markets. Another

consideration is the value of screen real

estate. HSBCnet allows individual clients to

customise their own site, adding additional

tools like FX charting, FX flow and FX

derivatives analytics if they wish. As a

result of the platform being modular in

nature, customisation can be achieved at a

macro level (the navigation of HSBCnet as

a whole) and micro level (within specific

applications).

Van den Heule: Customers have very

specific needs and it is difficult to find a

platform that provides for all client needs,

therefore by concentrating on a specific

customer segment a single bank platform

can become a specialist in a particular area.

>>>

Martin R. Severn

Christian Bouet


Burns: Single bank platforms have the

luxury of leveraging across product to

create a broad offering, without the need to

try to be “all things to all people”. This

enables customization and provides the

institution with the ability to better

penetrate its customer base. Once the

customer is comfortable with price and

execution, the conversation centers

around features and benefits. How many

day-to-day operational or manual

processes can be automated or

streamlined? How much visibility and

security is afforded over their trading

activities? How are other products and

services at the institution that they utilize

connected? Do you understand their

business and provide customized hedging

strategies?

Bouet: Our priority is to develop long-

term relationships with our clients and our

e-FX platform, Aquarius, is just one part of

our global offer and a natural extension to

our FX services. We value highly the

Clients who trade with us through

Aquarius and we work closely with them to

enhance our platform in order to respond

to their specific requirements. This special

relationship does not exist with a multi-

bank platform.

Severn: The key to the success of SBPs,

and to improved service for bank

customers, is flexibility and integration. By

developing functionality for specific

customer groups, segments, geographic

locations or regulatory requirements, the

SBP can provide enormous value in a way

that the multi bank portals cannot.

Whether it’s functionality to take account of

documentary requirements related to an FX

deal, or specific integration work to cater

for a particular client’s needs, or products

aimed a niche client sector, the SBP is often

the best way of achieving these goals. In

addition, use of E-platforms by banks’

internal ‘customers’ is a significant use of

SBP and often demands very specific

customisation and integration. This

development effort can then be leveraged

for use by external clients.

Clients now have more choice in how they

source liquidity and execute than ever before

and FX business is increasingly being won

by offering clients value-added services. Do

proprietary FX trading platforms have any

advantages over the multi-bank portals in

their ability to provide these?

Smith: With many platforms offeringsimilar services it is not necessarily aboutthe technology, rather the support servicesthey offer. If the basic transactionalservices are sound, allowing the client totrade any currencies and size, autoquoting24 hours a day, then the importance ofvalue-added services becomesincreasingly significant. HSBCnet’s FXflow analytics provides a good example.This service allows users to access adatabase of HSBC’s FX trades and buildbespoke charts themselves. Data isupdated 8 times a day, as trading centresreconcile at the end of their trading days.In addition, HSBCnet is integrated withservices from a number of other businesslines, including Cash Management. As aresult clients can view their balances, linkto cash flow forecasting, and book a FXtrade, using that rate as part of a foreigncurrency payment.

Van den Heule: There are some excellentvalue added solutions offered by bothbanks and multi-bank portals. Proprietarysystems may be able to develop theseservices more quickly but in the long run thecorrect specification and application to aparticular customer’s needs will be the mostsuccessful and this could come from either.

Burns: We’ve just alluded to a number ofways that Wachovia uses our technologyto our advantage – by building to ourcustomer’s needs. However, whatultimately distinguishes the single bankplatform is the value-add of the FXSalesperson who deals face-to-face withthe customer.

Personal touch and idea generation areoften lost with a multi-bank portal,particularly for the middle market andsmall corporate customer.

Bouet: Most of multi-dealer platforms aremono-product and do not offer anyderivatives products. They also need tocharge fees to the end-users and/or theliquidity providers to make money. As abank we can offer our clients access to allCalyon e-platforms as part of our globalrange of services. Electronic trading iscreating more cost efficiencies for us andfor our clients so we do not need to chargefees and we are happy to help clients withtheir integration. Moreover Clients will getthe same quality pricing because all ourplatforms, internal or external, are poweredby the same rate and price engines.

Severn: Clearly both types of systemshave a role to play in offering extra value tothe customer. Ultimately, it comes down toindividual clients and their particularneeds. For many, the multi-bank platformsprovide the functionality and liquidity thatthey require. For others, the specialisedfunctionality on some single bank systemsmay be of greater benefit. Either way,further added value is most often providedby way of the relationship. Although bothtypes of platforms have an important roleto play, it is clear that the technologyshould be viewed as simply part of a muchlarger relationship.

As more clients see the benefits of usingproprietary systems, how can eFXproviders differentiate their respectiveofferings in a highly competitive market?

The e-Forex Roundtable

Smith: System stability is important, as isprice. Clients want to know they can use bilateral systems in all marketconditions, to receive competitive pricing.Relationship is as important now as italways was: with the benefit that salespeople spend less time booking deals, andtherefore have the time to speak withclients. It is vital that the bank-clientrelationship is maintained and HSBC aimsto differentiate itself by embedding the echannel into the sales process. It is likelythat banks that develop as “e-banks”,overextending themselves by not beingable to support the channel with traditionalsales people will see market share erodedover the medium term. In addition, HSBCdifferentiates itself by supporting 70currencies, and their respective crosses,more than any other bank we believe. Wesupport these 24 hours a day withautopricing supported in Asia-Pacific,Europe and the Americas.

Van den Heule: Listening to their specificclient needs and tailoring their systems tothese needs will help to differentiate them.In addition there is a large amount offurther work that needs to be done inpricing technology, including latency,speed of quote, accuracy of price, etc. Thequality and consistency of prices is alsoanother major differentiating factor.

Burns: That question, in fact, applies morebroadly to banking in general. The wholeof the banking marketplace is incrediblycompetitive.

The key to differentiation is to havesalespeople who understand their market,understand and can exploit the particularstrengths of the institution, and bring thosepieces together to deliver value-addedideas to the customer. The same is true ofeFX providers.

Bouet: Of course we all compete on pricesand added-value services. But with anincreased price transparency and aconvergence in functionalities, the truedifferentiation can only come from thelevel of relationship management and thequality of service before trading (advisory,research, etc) and post trading (reporting,settlements, etc). At Calyon we focus ondeveloping long-term global partnershipwith our clients and we offer a 24 hourdedicated multi-lingual Client Servicesteam as well as integration support.

Severn: As time goes on and eFXplatforms continue to grow, differentiationwill be the key factor for many providers.Continual innovation, systems designedfor and aimed at specific market segmentsand a broadening of asset classes will allbe part of the evolution of SBPs. Banksneed to understand their client’s needs andprovide FX functionality that matchesaccordingly. At the same time, they needto develop systems which play to theirstrengths whilst not losing sight of the factthat the overall service offered tocustomers is vital and that technologyalone is not sufficient to sustain valuablelong term relationships.

How important is the current role of singlebank trading platforms in ensuringliquidity in the FX market and is this likelyto change in the future?

Smith: As 65 per cent of HSBC's e businessis dealt over our single bank platform, theanswer is very important. Naturally, we arecommitted to support clients on whicheverplatform they choose to trade, but wecontinue to see our single bank platform askey as we increase market share and growvalue added services.

Van den Heule: The single bank platformcan play an important role in ensuringliquidity in the market but it is just one ofmany channels that now contribute to theoverall liquidity pool.

Burns: Under normal liquid FX marketconditions, single bank trading platformsexcel in adding liquidity, as they are efficientin amplifying the available price in themarket. Conversely under illiquid FX marketconditions, these trading platforms fail toadd any measurable liquidity. Currently, anumber of these platforms are heavilydependent on the same pricing inputs.Going forward, those single-bank tradingplatforms that are able to model their pricesmore independently will succeed in beingthe liquidity providers of choice.

Bouet: The increasing number ofplatforms is creating more transparencyand giving easy access to new players. .There are many white-labelling offers onthe market so any bank can now launch itsown platform to service its clients but thatdoes not increase the liquidity on themarket. No electronic platform reallycreates liquidity, especially if they justreplicate voice trading models. The trueliquidity is only provided by a few topInvestment Banks who are ready tomanage risks.

Severn: Considerable FX liquidity isavailable on the SBPs and so clearly theyplay an important role in this regard. Asconsolidation in FX market makingcontinues, and an increasing number ofbanks out-source their non-core currenciesto third parties, SBPs are likely to becomemore important as sources of liquidity over time.

Will the increasing numbers of clients withfiduciary responsibilities to seek bestexecution drive clients towards multi-bankplatforms and impact on the developmentand provision of single bank platforms?


>>>

Smith: Not necessarily. If a client ismandated to get quotes from at least threebanks in competition then they will take amulti-bank platform and HSBC will continueto trade with them via that channel.However, if they are not mandated to getprices in competition, many clients aresatisfied with the transparency of price onHSBCnet and see the additional benefits ofour multi-product portal as enough tooutweigh a multi-bank portal.

Van den Heule: Fiduciary responsibilitieshave already been a significant driver ofclients towards multi-bank platforms andhave in some cases led individual banks toscale back the development of their ownplatforms. However, there are also manyclients that are able to satisfy thesefiduciary responsibilities by providing atime stamped competitive quote or ratefeed from a 3rd party system.

Burns: The short answer is No. At firstblush, multi-bank portals clearly hold anadvantage for any client with fiduciaryresponsibilities. But, best executionultimately encompasses so much morethan simply having the best price. There issufficient transparency in the FX market formost clients to ensure that they havesatisfied this requirement withoutcompetitively bidding every trade. Webelieve that best execution encompassesthe overall value to the client of the tradingrelationship, incorporating the value ofstrategic ideas, research, customer serviceand operational ease of use.

Bouet: Clearly multi-bank platforms have acompetitive edge being able to prove “bestexecution” although this does not onlymean best price. This is a very importanttrend in the Fixed Income market. That said,not all FX clients need to prove bestexecution and as price transparency isincreasing, there are new ways to cope withthe regulatory requirements.

Severn: Although true that best execution isincreasingly important from a clientperspective, multi-bank platforms do notalways help to achieve this. There are anumber of factors involved in achieving bestexecution for any particular trade and askingmultiple counterparties for simultaneousprices may be detrimental to this objective.In smaller markets, such as for someemerging market currencies, a medium sizedeal can move the market price. In thisexample, best execution may require askingjust one bank for a price. If more than oneprice is required, then this can also beachieved by using a number of SBPs ratherthan a multi-bank platform. I don’t expectthis issue to specifically impact the take upand use of single bank platforms.

Do you expect competition amongst singlebank offerings to increase and in what wayis their evolution likely to be effected bythe consolidation taking place within theFX industry?

Smith: In my opinion the banks that arecompeting for market share will continueto do so, in both the e and non-e world. Asa result, there will continue to becompetition between banks marketingtheir single bank platforms for theforeseeable future. As stated previously,with technology now a prerequisite thechoice of bank has reverted back to thetraditional values of price, liquidity andrelationship. I would expect to seecompetition increase between those bankswith global coverage, commitment to e-FX,and pricing capability in majors, minorsand emerging market currencies.

Van den Heule: Consolidation in the FXindustry and the growing number of banksthat are gravitating towards a smallnumber of technology providers, hasmeant that there is less competition onfeatures than there might otherwise be.Price competition will continue, althoughtransparency has driven these down tobreak even levels so there is now lessroom to manoeuvre on price alone. Againthe quality and consistency of the price willbe the key differentiating factor.

Burns: Yes, more banks will begin to offertheir customers the ability to trade FXonline, so competition will increase. Butwith the advent and relative ease ofimplementation of the various white-labeloptions that exist in the market today, webelieve that more and more downstreambanks will find it difficult to justify buildingor maintaining their own platforms. Sothere will be much less productdifferentiation as one moves downstream.

Bouet: The FX market is very fragmented.I expect further consolidation to happen inthe multi-bank platforms arena. Thetraditional boundaries between the inter-dealer market and the dealer-to-clientmarket are getting blurred with theintroduction of new business-models andplatforms such as e-speed, CME, EBSprime or HotSpot. The real question iswhether we are moving towards anexchange-style industry for FX or not. Asfar as single bank offerings are concerned,they will follow the consolidation of theInvestment banking in Europe but that isanother debate.

Severn: Yes, competition will continue toincrease as functionality and serviceimproves – driven by demand from ‘e-aware’ customers increasingly reliant upone-platforms for significant proportions oftheir FX business.

In addition, we see increased opportunitiesfor white-labeling and liquidity provisiondue to consolidation and overall reductionof market making banks.

Currently, the ability of proprietaryplatforms to tailor their products and offerclients, bespoke, customised solutions,provides a compelling value proposition.Will that be enough in the future to ensurethey remain competitive or will furtherinnovation be required?

Smith: I would disagree. Even at thispoint in time proprietary platforms alonedo not offer a compelling valueproposition. At HSBC we recognise thatclients require a complete online solution.Our portal, HSBCnet provides all servicesvia one website, with one user name andone password. As a result clients can, forexample, access their cash managementaccounts, make payments, trade FX orMoney Markets, view research and tradingideas, access real-time securities portfolioinformation and create a documentarycredit – all on the same site.

Van den Heule: In order to remaincompetitive innovation will always berequired, whether that be within the frontend of a system, or within the processesbehind that system. As technologydevelopment gathers pace, banks and multi-bank providers alike will need to continue todevelop their business models and work oninnovative new ways to service customers.

Burns: Standing still is the quickest way tobe passed by your competition. You cannever stand still. As your customer’s needsevolve, so must your solution set.

Bouet: The e-FX market is recent and stillchanging very fast. Coming from theFutures Industry, I have alreadyexperienced the extraordinary impact thatelectronic trading can have on a marketand I believe that we are just at thebeginning for OTC markets. It is not onlyabout innovation, it is about changing theway you manage risks and yourwillingness to fully reengineer workflows;the way you execute and process trades.There is still a long way to go for the FXindustry to benefit fully from all thepossibilities offered by new technologies.

Severn: As the market becomesincreasingly commoditised the banks willhave to continually add value to theirsingle bank platforms. Innovation will bekey to staying ahead of the competition.However technology is only one aspect ofthe FX relationship and we see the ‘non-e’service that banks offer to clientsbecoming increasingly important. Asmore vanilla business is done online, it willbe increasingly important for banks to offeran efficient, proactive, value-added servicefor structured products and derivatives.

The e-Forex Roundtable


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Well, whether we like it or not, this is the status quo in

the world of FX trading and FX IT. While electronic

trading amongst the banks has been in existence for

approx five years, we are now seeing a proliferation of

buy-side electronic FX platforms like never before. (My

last count was 21 offerings!) On many levels, this is

causing a collision of the old world vs. the new world.

On the trading level it is forcing more and more FX

dealers to become familiar and comfortable with

trading over the internet and on the IT side it is creating

some major integration challenges. And, unlike the

equities markets where electronic trading has been

around for some time and electronic standards and

formats (FIX) have been set, the electronic handshake

between FX sell-side and buy-side FX firms has yet to

be standardized across all industry participants. This

review focuses on the product features and IT

challenges that accompany this paradigm shift. It does

not address, intentionally, the software costs, liquidity

depth, or pricing charges that will vary from vendor to

vendor.

Product Features Matrix

The market can be divided into

two main categories: OMS

Providers (OMSs) and Liquidity

Providers (LPs). However, this

distinction is becoming more

blurred as many of the liquidity

providers are rapidly adding

sophisticated OMS features.

IT Integration of FXElectronic Trading Platforms:

the Impact on theBuy-SideThere’s a radio ad I frequently hear in the mornings in which theCEO of a major Fortune 500 hardware manufacturer boasts:“change is in our DNA. We don’t hide from it, we embrace it.”

Kelly Adams,Chief Technology Officer

at FX Concepts

Pure software (broker/bank neutral)solution, package is installed on site anddata connections are independentlymanaged.

Ability to program rules-based tradingmodels within the order managementtoolkit. Typically this is a pre-defined setof algorithms that can be easilycustomized. Can also be accessed via anAPI.

ESP™ (electronic streaming pricing). Thisis the backbone of electronic trading.Individual banks provide a proprietaryprice feed into the OMS system and thenaggregate multiple feeds from multiplebanks. In the OMS solution, the feeds aremaintained on-site by your own ITdepartment (with support from the OMS).

RFS™ request for streaming or request forquote). This is older method (but still inuse) whereby a specific price request ismade to a specific bank).

Buy-side firms can trade anonymouslyunder credit arrangements and name ofPrime Broker(s) or trade in own name ifso arranged. Can participate as pricetake and market maker if desired.

Back-office automation is completely open-ended, i.e. workflow must be defined andbuilt. Fills can be delivered to PrimeBroker or any other designated destination.

Tend to be more complex, more geared forrules-based trading. Needs to ‘dumbed-down’ for straight forward execution/

Very sophisticated order types, e.g.random slicing, logic based orderadjustments, etc.

Completely dependent on the collectionof banks and Liquidity Providers youchoose to use.

ASP (web-based). No special installationrequirements beyond reliable internetaccess. Connectivity occurs betweenbanks and ASP.

Tends to be more basic ordermanagement with emphasis onsimplicity. Rules-based algorithmsgenerally have to be programmaticallydone outside the system and interfacedin via an API.

Similar to the OMS products with twoimportant distinctions: the LiquidityProvider delivers a pre-selected group ofbanks and actually creates a ‘virtual’closed marketplace for each subscriber.

Secondly, the Liquidity Providers handlethe RFS™ and RFS™ connections for you.

Typically can only trade anonymouslyunder credit arrangements and name ofPrime Broker(s) only. Some LPs allow you to participate bothas price taker, market (price) maker. On some platforms, orders can becrossed creating a virtual but limited FX ECNs.

Generally better integration with specificPrime Brokers to help streamline theback-office workflows. However, no off-the-shelf solution exists for the give upand allocations process.

Very easy to use, advanced web-basedinterface.

Basic: stop loss, at best, fill or kill, limit.Note: some of the Liquidity Providersnow support some very complex ordertypes beyond limit, fill or kill, at best, etc.

Varies widely on the group of banksinvolved. Tends to cover the majorcurrency pairs; currency pairs fordeveloping countries is less available, but growing.

Technology

Platform

Algorithmic

Trading

RFS™/ ESP™

Price Taker /

Market Maker

Back-Office

Integration

GUI

Order Types

Market

Breadth/Depth

Order Management Systems Liquidity Providers


Making the Choice

It is easy to get overwhelmed by the choices. One key bit of

advice is to have a clear idea of your requirements before you

begin your evaluations and stick to the products that are the

closest match to your business model. For example, if

you’re looking for a simple out-of-box solution as a

replacement/augmentation for telephone dealing then clearly

one of the liquidity provider platforms (HotSpot™, Currenex™,

FX Marker™, LavaFX®, eSpeed™, etc.) would be a good

match.

If you’re looking for a multi-tier platform on which to build a

rules-based trading system then one of the OMS products

(FlexTrade™, PortWare™, RealTick™, Tethys™, LavaFX® )

might be a better choice. These front-ends are not liquidity

providers per se but rather act as a conduit to multiple liquidity

providers. Finally, you can also go the API route and connect to

any one of the banks’ ESPs™ directly and/or one of the

aforementioned liquidity providers, as they all have an API that

can be integrated with your internal systems.

>>>

Integration – Devil’s in the Details

Often overlooked in the beginning of the process are the back-

office integration details. Most FX buy-side firms work within

the context of a prime broker whom they rely on for credit,

settlements and payments.

“In theory, electronic trading should bean enabling process for STP”

All transactions are given up to one or more prime broker and

then further allocated amongst a defined set of funds and/or

managed accounts. In theory, electronic trading should be an

enabling process for STP (straight through processing).

However, the challenge is getting the fills from the execution

platform and applying the give up pricing fees and allocation

breakdowns for both internal systems and the prime broker(s)

– easier said than done.

From an IT perspective, the goal is to piece these components

together without creating more internal headaches. The

obvious first step is to get all parties together (Vendors, Prime

Broker(s), Trading, Operations, and IT) and agree on the

specifications/requirements for a seamless trade flows. Once

the blueprint is established then the processes need to put to

in place to perform these tasks automatically. Some tasks can

be programmed directly into the vendor platform such as the

average pricing of multiple fills and prime broker all-in mark up

fees.

The allocation schedules also have to be integrated (2 levels:

Prime Broker splits - if more than one prime broker is involved,

and account allocations) It is relatively easy to allocate at the

prime broker level but the account splits pose a more difficult

problem in that the schedules are typically more fluid. One

way around this is to employ a web services SOAP interface

such that the vendor can directly access the dynamic allocation

schedules via the internet, with proper security, and allocate

the fills before sending them onto the prime broker(s). There

is no correct answer here as there are many ways to solve this

problem. This is just one suggestion. The point is that these

are the dirty details that have to be addressed in order to move

onto a fully integrated electronic platform.

In Conclusion

There will be consolidation in the Liquidity Provider space over

the next two years because the market cannot sustain this

many vendors. Furthermore, EBS Prime™ has come out with a

buy-side product that will impact the market significantly. I

anticipate that the there eventually will be a handful of players

each having a particular niche and/or liquidity specialties.

There is also no question that over the next 2-3 years the FX

trading volumes will shift more and more to the electronic

marketplace. Additionally, the electronic standards will

converge and, more than likely follow the way of the equities

market, i.e. FIX will become the industry standard along with a

foreign exchange variety of FDML. (financial derivatives

markup language). So the question remains, how will your

firm prepare for it and integrate these platforms? If you’ve

haven’t thought about it yet, then now is the time to start.

IT Integration of FX Electronic Trading Platforms: the Impact on the Buy-Side


Celent estimates that total market spending for

trading systems was US$445 million at year-end

2004, and that global technology spending will reach

US$701 million in 2007. These figures reflect

downward pricing pressures as portfolio system

providers and low-cost alternative vendors become

more aggressive in this market.

Trading technologies are commanding a good deal

of attention in an environment focused on regulatory

change, compliance, internal controls, increased

global trading, and advancing electronic automation

and connectivity. Regulatory change has made a

portfolio compliance solution more desirable to

formalize internal processes, controls, and

documentation.

“Technology budgets are comingalive again and the front office is

the ideal place to get tradeprocessing right from the start”

Once this is in place, adding a trade blotter module

becomes easier and less costly, as vendors typically

price according to the number of modules

purchased.

Trading Technologies:Competition Drives Decline in PricesMarket Trends in Trading Systems

Denise M. ValentineAnalyst, Securities &

InvestmentsCelent Communications

e F X & A S S E T M A N A G E R S


Technology budgets are coming alive again and the front office

is the ideal place to get trade processing right from the start.

Front office automation means trade error reduction,

electronically documented communication from portfolio

manager to trader, increased execution speed, and elimination

of back office re-work. Asset managers will configure trading

technology options to fit their own requirements, and the

proliferation of options will provide an environment of

declining cost. Automation, external connectivity, and firm size

are no longer tied as trading technology costs shift downward.

Wide range of product options available

The high end of the financial institution market is saturated, and

if anything, these firms are consolidating vendors. Their high-

end technology providers are now moving downstream. At the

same time, there are more vendors in this space then ever

before and there is a range of product options available. Asset

managers can purchase portfolio modeling, trade execution,

and pre- and post-trade compliance as a full front-end suite or

by picking and choosing modules. Other vendors, such as

TradeScreen or Advanced Financial Engineering, support

automation of select trade processes (for example, trade

execution only with a broker-neutral trade execution venue.)

The significance is that a greater number of money managers

can obtain some form of electronic access to the securities

markets, and cost will no longer inhibit access.

Trade order management systems appeared in earnest in the

1990s. They were expensive and adopted by the largest

financial firms, which could justify the expense with the

efficiency and savings for a global, multi-desk operation. These

users provided an enormous amount of needed product

development feedback that created a front-office revolution.

However, research and development costs kept prices high, and

implementations remained cumbersome.

Soon after, vendors of portfolio management and accounting

suites—such as Advent, DST International, Financial Models

Co., INDATA Systems, and Linedata Services, to name a few—

introduced modules developing the features and functionalities

that made leaders of Charles River Development, Macgregor,

and Eze Castle Software. Midsize asset managers may find that

the features and capabilities in the trading module of a full

portfolio system suite meet their requirements. Implementation

and training are relatively easier alongside an existing portfolio

management and accounting system.

A relatively more recent category includes vendors that focus

on certain features to eliminate cost barriers or to appeal to

particular market groups, such as hedge funds. These solutions

allow managers to create custom quantitative trading strategies

and can also use standard methods, such as risk arbitrage,

long/short, and volume-weighted average price (VWAP). Firms

such as Portware, FlexTrade, and Miletus Trading are active in

the hedge fund and quantitative communities.

Targeting asset managers

Reuters and Bloomberg now offer links to broker-dealer

algorithmic trading programs. Small asset management firms

can jump on the automation train as well, meeting trading

needs with a combination of options—perhaps Reuters for

algorithmic trading, a broker-dealer trade platform with their

most frequently used broker, and the traditional means of

phone and fax. Small to midsize asset managers with lower

trading volume have an opportunity to bring together several

venues to satisfy their trade connectivity requirements and

budgets. 2005 marks the beginning of broader access to

electronic trade connectivity.

“Vendors may target asset managersdirectly; emphasizing their experiencewith the broker-dealer community and

connectivity requirements”

Sell-side trading vendors are also targeting asset managers, as

GL Trade is doing with a new product, GL Winway. These multi-

dealer trading systems are frequently deployed as an

application service provider, or ASP. Vendors may target asset

managers directly; emphasizing their experience with the

broker-dealer community and connectivity requirements, or

broker-dealers may offer the trading solution to asset

management clients.

A number of broker-dealers deploy ASP multi-dealer trading

systems as a service to clients, although it is unclear whether

this will gain momentum. Asset managers trading with

numerous partners may not feel comfortable with such an

arrangement, even if it is provided by a third-party vendor. In

the end, if the broker-dealer pays the bill, independence may be

questioned. These days, appearances are paramount.

>>>

Moving into 2005 independent firms such as Charles River,

Macgregor, and Latent Zero will find themselves toe-to-toe

with more portfolio system suite vendors, as well as a growing

number of smaller, aggressive independents expanding out of

the sell-side and hedge fund markets. Eventually, these market

changes will mean a greater number of options for asset

managers at a variety of price points. Meanwhile, expectations

for features and functionalities continue to standardize,

producing important enhancements as the bar is raised to

differentiate solutions.

The latest upgrade is in algorithmic trading programs.

Vendors are embedding direct access to broker-dealer trading

programs, and providers such as Charles River, Macgregor,

and Latent Zero will have a dozen or more broker-dealer links

by the end of 1Q05. Each broker-dealer then provides direct

access to three, five, or more different algorithmic programs.

With such a proliferation of firms in the space—some of which

offer very similar algorithmic trading programs—asset

managers will likely default to their established broker-dealer

relationships.

The future

What’s next? While greater access to automation and external

connectivity for a greater number of asset managers is

exciting, it may not meet everyone’s expectations. Expect

development and integration of analytics tools that support

transaction costs analysis, real-time risk management, and

performance evaluation in the front office.

Trading Technologies: Competition

Drives Decline in Prices

Market Trends in Trading Systems


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Equity firms in the securities industry have

long taken advantage of the available

electronic technology to manage high trade

volumes, improve workflows, achieve

operational efficiencies and reduce trading

costs. Over the past year, similar uptake has

started to occur with fixed income firms. It is

therefore not surprising to see the beginnings

of FX automation as major players begin to

examine their own workflows for potential

improvements - especially when pressure is

brought to bear on all aspects of the

organization to improve performance and

reduce costs. Unfortunately, FX trading and

the automation of its operations have long

been the poor stepchild in many firms. As a

result, disconnected and risk-laden manual

processing is still the norm and many

opportunities for automating a straight

through process are lost.

The opportunities for efficiency begin right at the start of the

trading cycle during the analysis and rebalancing of client

accounts. This process creates the need to either re-hedge the

fund’s currency exposure or obtain local currency for

transaction settlements. Once this process takes place, FX

trades are called, faxed or emailed to multiple parties both to

obtain current pricing information and for execution.

Fill details come back during the day; and are entered manually

into the system for allocation to the corresponding accounts.

There are two glaring flaws in this process: 1) unquantifiable

FX exposure existing during the time lag from the moment

exposure is uncovered to the point it is filled and, 2) the

decentralized systems and manual processes are costly and

can lead to breaks and errors. In order to eliminate the risks,

the FX market is addressing these two areas, among others,

which will improve trading efficiencies.

Where are we today?

While larger firms have already created centralized FX dealing

desks, the systems in many cases do not integrate with other

trading systems within the organization or with the myriad of

third party execution platforms available.

Richard Enfield is Director ofProduct Management at

Charles River Development

FX Automation: It’s not about

“electronic” it’sabout “workflow”



As a result, manual processes exist to determine FX exposure

of portfolio positions and for trade settlement; and for the

creation and processing of the resulting trades for execution.

Many smaller asset managers take a different approach by

outsourcing the trade settlement mechanism entirely, to either

their custodian or the executing broker on the trade. While this

may reduce internal costs, it poses a different problem - there

is no guarantee that achieved rates are competitive with the

available market rates at the time of execution. Even where not

outsourced, decentralization of the trading function can lead to

detrimental results, as it is difficult to achieve economies of

execution scale. Additionally, whether using a centralized,

decentralized or outsourced approach, firms are taking

unnecessary market risk in delaying their FX transactions, thus

creating exposure for little or no benefit in either cost or rate.

Where to Start?

Evaluating the current process and determining how the firm

generates, executes and settles FX transactions is the most

critical place to start. Many firms define electronic trading and

STP simply as the implementation of a method to execute

trades that does not involve the use of paper tickets and a

telephone. Recreating an existing manual process using a

computer may look efficient, but often does not achieve real

benefits. Error-free trades should pass through the respective

systems automatically, allowing staff to only deal with those

trades that fail and/or are exceptions. Therefore, as strange as

it sounds, “forget the computer” may be the first thing a

company needs to do in order to transform their FX business

practices; it is not about “electronic” it is about “workflow”.

Initiating a multi-asset class electronic method for executing

trades involves looking at the established workflows and the

different methods that each set of managers and traders use in

performing their investment functions.

The Players

There are three primary players involved with automating

today’s FX trading – asset managers, OMS vendors and

liquidity /execution vendors. While each impacts the process

in different ways, all three must work together for the

successful automation of FX trading.

Asset managers often look toward automation as a way to

resolve a number of concerns. At the top of the list is the

proper management of client accounts and the concern over

appropriate exposures to differing types of risk. There is also

the continuing quest for cost savings at every level –

whether by increasing the number of portfolios or trades

that a particular individual can manage, or eliminating

costly failed trades, cash overdrafts or unnecessary

reconciliation procedures.

“When implemented across all assetclasses, a properly configured OMS

can centralize FX dealing for the entire organization”

However, managers can only realize true STP, with all of its

benefits, by moving to an exception-based operating model.

The brute-force method of dealing with every transaction is not

scalable and touching every event will lead to errors as

volumes continue to grow.

What’s more, in today’s manual FX processing environment,

the exposure created by unhedged currency positions is

unquantified in many firms. Finally, by not negotiating FX

transactions themselves, managers are leaving margin on

the table.

To improve this process and help asset managers reduce risk,

order management system (OMS) vendors like Charles River

Development are developing systems that not only automate

the order management process, but also offer additional tools

to better integrate with clients’ internal systems. When

implemented across all asset classes, a properly configured

OMS can centralize FX dealing for the entire organization, even

taking into account compliance for counterparty exposure

management, as it sits on every pertinent desktop and contains

a full and complete record of every event, trade execution and

contractual settlement on a real-time basis.

Configurable workflows and electronic connectivity are bread-

and-butter features of the new generation of OMS systems,

which take into account the needs of various firms. In addition,

several OMS providers either embed settlements modules or

interface to third party settlement tools, allowing organizations

to automate the complex settlement processes – including the

manually intensive error resolution.

Finally, there are a large number of execution / liquidity

vendors involved in the process including the traditional

custodians and money center banks, broker dealers and ECN

providers. Over the past few years, many have implemented

their own versions of FX-specific trading systems, but true

integration with asset management multi-asset class OMS

systems is required in the future. There is only so much space

on the desktop and narrowly focused front-end systems are

losing the real estate battle to broad-based tools – whether

they are third party or custom built.

>>>


FX Automation: It’s not about “electronic” it’s about “workflow”

Achieving Automation

With all of these options and interested parties, it isn’t feasible

to interface to every system in the market using proprietary

connectivity methods. Luckily, the FIX protocol provides a

common language for communication and it is ideal for

communicating among multiple trading desks, trading venues,

and portfolio managers. However, it is what the protocol does

not give that is the real barrier to success.

The FIX protocol is just the language we all use to talk and

even in the “mature” world of equities, there are many FIX

implementation differences. The diversified nature of trading

more complex instruments, like fixed income, or the more

complex strategies, like hedging, mean that a lot of specifics

still remain to be ironed out as we connect disparate systems

electronically.

Implementation of FIX requires overcoming a number of

hurdles, many of which require independent firms with

independent objectives to cooperate towards a goal whose

ultimate business impact is uncertain. Some of the hurdles

asset managers, OMS vendors and liquidity/execution vendors

must overcome collectively include:

• Who wins the battle for the desktop? Whose system will

serve as the front end for the user interface? Ideally, the

system utilized across a firm is the one that makes the most

sense in terms of workflow, rather than the one with the

most brand power. The further removed the end user is from

the interface, the less valuable the name branding becomes.

• Which workflows do we support? Implementation of FIX can

be as simple or as complex as desired. To what level will

each system support the various messages? How far into

exception processing should the automated workflows

delve? The engineering cost is high; is there a competitive

advantage for all of the extra effort?

• What business changes are necessary? There are many

differences among FX trading and traditional equity or fixed

income when it comes to credit and counterparty exposure.

Resolving these complex issues requires some fundamental

process changes, especially surrounding block vs. account-

level trading and settlement.

• Is the data consistent? In order to implement

automated processing smoothly, each system

must recognize the data. Each party must be

flexible and agree on standard conventions; for

example, two character vs. three character ISO

codes, currency descriptions, and naming and

date conventions.

Benefits will accrue from the automation of FX transaction

processing. Its effective implementation can significantly

reduce risk accruing to portfolios due to unhedged currency

exposure. Quoted rates should improve by returning control

over FX execution to the asset manager and allowing them to

block transactions and gain better visibility into the market. In

addition, automation will reduce the number of errors

experienced with manual processing, which in turn, will lessen

the costs associated with failed trades and cash overdrafts.

The key is for asset managers and technology providers to

partner and leverage technologies such as the FIX protocol and

create an implement-able workflow.


The investment management community

are responsible for a growing percentage

of FX trades but have expressed concerns

in the past about online trading. These

ranged from loss of personal contact, to

worries about the security and

performance of the Internet. Are you

confident these have all been overcome or

do some still remain?

Mackaman: Providers have overcome

many, but not all, obstacles to online

trading. Online trading platforms should

facilitate, not diminish, the level of

personal service. Likewise, security of

Internet trading has been addressed with

digital certificates, encryption, and so on.

Occasional glitches in performance, such

as response delays or temporary

unavailability on the web site, are

understandably annoying. However, with

ongoing technical advances and vigilance,

we expect to see continuous improvement

in Internet security, reliability, and

robustness of the web product.

Warms: The majority of asset managers

have already adopted online trading, or are

planning to do so.

Any concerns the buy-side may have had

about trading online have long since been

dispelled, as customers quickly realized the

Internet was not only more secure and

reliable than the telephone, but also

delivered best execution and increased

efficiency. FXall's relationship-based

trading model enhances existing dealing

relationships, providing customers with a

much more comprehensive offering and

freeing up time for banks to focus on

added value services. FXall has invested

heavily to deliver tight security and high

performance, and to provide banks with

tools that help them build and enhance

customer relationships. The size of our

volumes and customer franchise - more

than 700 institutional clients, and trading

volumes reaching more than $35 billion a

day - clearly demonstrates that worries

about loss of personal contact, security or

performance, are no longer an issue.

Lowry: For investment managers, FX will

always have a relationship aspect. The

security and performance issues with eFX

have mostly been addressed. The same

cannot be said about the loss of personal

contact. To the extent online trading

disintermediates clients from their

relationships, the industry as a whole

suffers. I think the industry swung too far

away from relationships and is now

starting to come back. Our clients are the

largest real money managers in the world

and the largest global liquidity providers.

We’ve noticed definite interest from both

the buy and sell side in trying to re-

establish the importance of relationships.

Spurr: It is true that some of our clients

feel more comfortable in talking to a dealer

when placing an order for an FX

transaction. Whereas in the past security

and performance have been reasons

quoted by clients for not trading more on-

line, over the last few years, more and

more of our clients have explored the

eCommerce possibilities and have

discovered increased efficiencies, cost

reduction and minimising of Operational

risk. This is partly because eCommerce

systems have become faster and better

designed; also because Internet now is

faster than ever before. In RBS we use the

latest security technology which allows our

clients to safely operate our platforms and

our API’s via the internet.


eFX – adding value to the investment

management process


With Ruth Mackaman, Vice President, e-FX Marketing and Product

Development at Brown Brothers Harriman Inc, Mark Warms, global head

of sales and marketing at FXall, Chip Lowry, head of Global Link Europe

at State Street, Martin Spurr, Head of eVentures and ATS at The Royal

Bank of Scotland and Paul Chappel, Principal at C-View Ltd, as Moderator.

Paul Chappel

Principal at C-View Ltd

Ruth Mackaman

“A consultative, two-way partnership betweenthe provider and client is key to delivering

the right solution.”

F O R U M


Each client in this sector has a unique

workflow. Does this require a much more

consultative approach by eFX providers to

obtain the necessary client feedback on

what they are looking for from an

electronic FX solution?

Mackaman: We’re constantly struck by the

diversity across different market segments

and geographical locales. A consultative,

two-way partnership between the provider

and client is key to delivering the right

solution. While it is challenging to design

the right e-Forex solution for one

investment manager, it is satisfying when

we are able to adapt that solution to others,

while listening to feedback from each client.

Warms: There are as many FX workflows as

there are asset managers. These

clients don’t want to buy an off-the-shelf

e-FX solution that requires them to

change their way of doing things. They

want a flexible solution that works with

their existing FX dealing workflow. FXall’s

customer engineers work closely with

clients throughout the integration

process to ensure that the end solution

solves their unique trading and workflow

requirements. This collaboration is

invaluable in developing our product

strategy – for example, our order

management tool, QuickOMS, was

developed to meet asset managers’ demand

for a product that could reduce the effort

required to execute an entire portfolio of

trades across multiple allocations,

currencies and forward dates.

Lowry: What we’ve seen over the years is

what clients’ value most in an eFX solution is

the enhanced business process. As

business process varies by client, we’ve

found that a consultative approach is

paramount to deliver the most value

possible. An off the shelf product or one that

allows for limited integration is of little value

to clients. Our workflow connectivity team is

involved with clients from the start and is an

integral part of our client relationships. We

get to know a client’s process as well as the

client does and often help implement

improved business practices.

Spurr: I feel that the time when you could

sell clients a “box” and walk away hoping

that they would start trading has long gone.

Clients are becoming more sophisticated

not only with regards to the technology

used but also with the trading strategies

implemented. This means that sales people

become consultants who try to understand

the business requirements of the client and

provide them with a unique solution

tailored to the specific profile of that client.

We see more and more integration to TMS

via API’s as well as complete STP

requirements, which push banks like

ourselves to develop even better systems.

How much progress has been made by

providers in delivering STP solutions that

cover the whole trade lifecycle, and how

important is Lifecycle management

becoming?

Mackaman: Much progress and very

important. STP demands have driven

many of the e-Forex advances in the last

few years and will continue to do so.

A “3600 STP” process reduces risks, costs

and operational pain points. When

providers fail to offer a full STP solution,

they are both limiting their offering and

setting up the client for potential pitfalls

and frustrations. A provider must have a

clear picture of the full trade lifecycle in

order to create a scalable and enduring

solution.

Warms: The ability to automate the entire

trade lifecycle is what sets the best online

platforms apart. Asset managers require

end-to-end STP in order to achieve greater

efficiency, reduce risk and comply with

industry best practice guidelines.

Technology has evolved rapidly to keep up

with clients’ STP requirements – banks,

portfolio management systems and online

platforms like FXall have all invested

heavily to provide clients with end-to-end

straight-through processing. FXall was the

first FX platform to move beyond

execution to automate the full deal

lifecycle, from automated pricing and

execution through to trade splits and

rolls, prime brokerage give-ups,

confirmation matches and third-party

notifications to custodians.

Lowry: Clients are becoming more aware

that best execution means more than price;

trade lifecycle management is becoming

more important. We are moving from an

environment where people think of STP as

an end unto itself to one where STP is

viewed as an important tool in lifecycle

management and the central nervous

system of best process design. As far as

we’ve come in this field, there is still more

work to be done both in agreement on

business practices and extending standard

protocols.

>>>

Mark Warms

“Any concerns the buy-side may have had about trading online have long since

been dispelled”

Chip Lowry

“Clients are becoming more aware that bestexecution means more than price”

Martin Spurr

“STP has been a driving force behind theevolution of eCommerce FX systems”


e F X & A S S E T M A N A G E R S F O R U M

That’s why we ensure that Global Link’s

products such as FX Connect and GTSS

have an open and adaptable API. We

routinely find ourselves delivering entire

FX order handling solutions and not simply

a point of execution.

Spurr: STP has been a driving force

behind the evolution of eCommerce FX

systems. This means that the whole trade

cycle, from inception, to execution and

confirmation can take place electronically.

We can now offer clients complete STP and

we feel that going forward all eCommerce

systems have to be offered as a complete

back-to-back solution allowing clients

economies of scale, limited operational

risk and better risk management. This

coverage of the full transaction lifecycle as

well as providing a range of trading styles

for clients is absolutely essential to success

in this business.

When considering the functional aspects

of the eFX proposition, where are asset

managers placing more emphasis? For

example, are they likely to be less

interested in sourcing multiple pricing and

more on the order management and STP

capabilities of e-platforms?

Mackaman: From where we’re sitting,

asset managers assume best execution.

It’s the other features, such as the high STP

rate, that they’re looking for. Although

multiple pricing functionality is key to

transparency and satisfies the asset

manager’s goal of demonstrating best

execution, pricing transparency is only as

good as the complementary STP

functionality.

Great execution is quickly forgotten if theoperational processes break down. Thelast thing either the client or providerneeds is the headache of unnecessary costor settlement risk issues.

Warms: Best execution is increasingly thenumber one priority for asset managers,and accessing prices from multipleproviders is an important element of this.Even customers that deal with a singleprovider need to be able to prove bestexecution to their investors; they canachieve this by comparing the pricereceived to the benchmark date recordedat the time of execution. However, STP and order management capabilities are fast becoming as, if not more, importantthan pricing. As best practice andcompliance become more onerous, assetmanagers are also placing increasingemphasis on control and compliance.Electronic platforms like FXall make iteasier to comply with best practiceguidelines and accounting regulations bygenerating a full audit trail for everytransaction, as well as facilitating role-based permissioning mechanisms.

Lowry: This really depends on the marketsegment. Traditional money managersand some hedge funds place moreemphasis on best process implementationand lifecycle management. In thatsegment, the OMS and its ability toconnect to various venues are ofparamount importance. In contrast, wherethe trading strategy, itself, is theinvestment idea, sourcing multiple pricesis most important. That’s why we’vestrived to ensure that Global Link’s offeringare completely adaptable and open todiverse workflow requirements.

Spurr: Initially the interest in the multi-bank platforms was driven by a desire toachieve improved price discovery andessentially this objective has beenachieved. However, the limitations of thisprocess are that this price is determined bya limited sample of the market (typically 5banks or less) and the resulting STP factoris similarly multiplied by the number ofbanks used. RBS has responded bycreating an FX benchmark which is auditedby Deloitte & Touche providing fullauditability of rates, coupled by STPcapabilities. This meets the objectives ofMARKET price discovery and a single STPinfrastructure.

Additionally, the creation of a market

benchmark opens up opportunities for

developing analysis tools such as

TWAP/VWAP and transaction cost analysis,

both of which are playing an increasing

role in trading decisions by the asset

management community.

Amongst your own clients in this sector,

what e-tools are proving particularly

popular?

Mackaman: The BBH FX WorldViewSM

suite, which includes Portfolio Trades and

FX IndexLinkSM, has seen significant growth

due to client demand for increased STP

functionality with aggregation and

allocation tools. FX Orderview® is widely

used by our clients to automate and

monitor limit orders. Our offshore clients

have embraced our share-class hedging

product because this formulaic and

analytical processing tool enables them to

implement their currency neutral strategy.

We also participate in the major industry

portals (FXall, FX Connect), recognizing the

importance of meeting our clients’ needs

to trade on these platforms as well.

Warms: QuickOMS and Settlement Center

have proved particularly popular with asset

managers. QuickOMS, FXall's advanced

portfolio trading tool, streamlines asset

managers’ foreign exchange workflow with

a wide range of order management tools,

including the ability to: submit orders to

banks for execution at a specified fixing;

trade large net spot positions in competition,

then roll allocation details forward; and trade

net currency positions before submitting the

underlying requirements.

Ruth Mackaman

“Great execution is quickly forgotten if theoperational processes break down”

Mark Warms

“Asset managers vary in how closely their FX platforms are integrated with other

asset classes”

Settlement Center, FXall’s post-trade

processing platform, also includes a

comprehensive set of tools designed for

asset managers. These include automated

third-party notifications to custodians,

prime brokerage give-ups and reverse give-

ups, and a complete database of settlement

instructions for every client.

Lowry: E-tools by themselves are nothing

without the people to examine process and

implement solutions. As this industry

matures, most of the workflow and lifecycle

management will be built into the OMS with

e-tools being commodities. Everything

around the OMS will be on the periphery.

FIX will handle most of the plumbing. The

most important offering we have is our

workflow connectivity team. We’ve been

working in this area longer than anyone else

and have seen nearly every possible

business process. We use FX Connect for

trade execution and GTSS for trade

confirmation, custodian notification, and CLS

settlement.

Spurr: Clients are always hungry for new

functionality and deeper integration. We are

working on releasing an electronic order

book API which will allow clients at all levels

of sophistication to place orders 24/7 through

RBS. An ever growing number of clients,

even if they are not dealing electronically are

looking for STP on order confirmation thus

reducing Operational risk. RBS clients have

also shown an in interest in electronic

Options Trading using a screen or via an API

(system to system). Such systems allow

greater integration with client’s proprietary

technology and allow complete STP.

The delivery of Prime Brokerage services is of

growing interest. How important is it that

banks providing single bank platform

solutions and those contributing to multi-

bank execution, have a clear strategy as to

how they are going to work with a manager's

Prime Broker and have a mutual

understanding of how the integration process

falls between those two separate providers?

Mackaman: Providers must have a long-term strategy for integrating an array ofproducts, including Prime Broker solutions.We are starting to see some interest inintegrating our solutions with PrimeBrokers, but it just hasn’t reached sufficientcritical mass to penetrate our current e-Forex framework. In our view, clientdemand will increase for provider systemsto integrate with their Prime Brokers andthese systems must provide scalability andflexibility to meet this requirement.

Warms: Asset managers and hedge fundschoose to trade on FXall in a variety of ways.Some trade directly with their relationshipbanks, others through their prime broker, inwhich case the client needs to notify theirprime broker of all transactions executed.FXall’s prime brokerage messaging hubsimplifies this process by leveragingSettlement Center's network of more than 50banks and prime brokers to automate give-up and reverse give-up messages on all FXtransactions, turning prime brokeragemessaging from a cumbersome and error-prone process into one that is fast, cost-efficient and virtually risk-free. Using ourproprietary trade matching technology, itmatches trade details between the executingbank and client, before sending the detail ofthe match on to the prime broker. FXall’sprime brokerage customers also have theoption to split or roll trades forward afterexecution.

Lowry: Prime Brokerage workflow for thetraditional asset manager community is stillan evolving concept. For the hedge fundcommunity it’s the standard businesspractice. I think of the prime brokerageworkflow as just one more type of workflowthat banks need to support. There arealready vendors in the marketplace whichprovide the backend infrastructure betweenbanks so I don’t see this as much of anissue. Using Global Link’s tools such as FXConnect and GTSS, there hasn’t been aprocess our workflow connectivity teamhasn’t been able to handle.

Spurr: Prime brokerage is a very competitiveenvironment where only banks with highlyefficient processing infrastructure willsurvive. This means that STP with thevarious platforms through which a PB clientchooses to trade becomes a source ofcompetitive advantage to the banks. A clear‘connectivity strategy’ is therefore vital toany bank and has been one of the maindriving forces behind RBS’ e-commercestrategy from the earliest days when RBSwas one of the few banks to stream liquidityinto multiple platforms and the subsequentdevelopment of a comprehensive suite ofAPIs covering price in advance, RFQ,Streaming, benchmark fixings, orders andpost trade services.

For asset managers seeking to maximise

the benefits of eFX platforms can we expect

increasing demand for integrating FX with

other products such as fixed income or

equities?

Warms: Asset managers vary in howclosely their FX platforms are integratedwith other asset classes ˆ for some, FX istreated entirely separately, while for othersit is an integral part of the underlyingtransaction. Whichever tool an assetmanager uses to trade, it is important that itis flexible enough to be integrated into theirexisting workflow. However, this does notmean that it is necessary to trade all assetclasses on a single platform. What isessential is that transaction details for allasset classes flow into the customer‚sportfolio management system. FXall solvesthis by delivering a seamless interfacebetween FXall and client systems, meaningthat transaction information can beuploaded and downloaded automatically.


>>>

Chip Lowry

“E-tools by themselves are nothing withoutthe people to examine process and

implement solutions.”

Martin Spurr

“Clients are always hungry for newfunctionality and deeper integration”

Lowry: What we’ll see are better definitionsand implementations of trade lifecyclemanagement. This will undoubtedly includeother asset classes including fixed incomeand equities. We already see the FIXprotocol being extended to help in this area.FIX will be a part of the answer here but notthe whole answer. Until we get there, animportant aspect for eFX is ensuring theintegration of FX workflow across multipleasset classes. Global Link has been a multi-asset class platform from the start, so we’revery familiar with asset specific workflowsand how to work with them.

Spurr: In RBS we think that there is anever increasing demand for cross Assettransactions. One of the reasons for this isthe advent of technology allowing formultiple transactions linked together. Let’ssay for example that an Asset managerwants to transact a EUR bond purchase buthe is U.S based. He would immediatelyneed to cover his FX exposure transactingthe FX element of this trade separately.

e-Trading tools are making it easier to

ensure clients are getting best execution, a

terrific spur for adopting electronic FX.

However, if these tools are becoming

almost commoditised and to an extent

diminishing the ability to add value on

execution, how can providers differentiate

their eFX services?

Mackaman: Not surprisingly, assetmanagers are looking for consistency offunctionality across providers. Clients arepretty much asking for a standard set ofdemands and consequently, eFX solutionsmay appear to be commoditized.Regardless of the look and feel, most ofthese product offerings will includecommon features: transparency,aggregation, allocation and STPefficiencies, to name a few. It is the corecompetencies of the provider – such asbest execution, relationship management,research and analysis – that differentiatethe various e-Trading tools.

Warms: While spot prices in majorcurrencies could be described ascommoditized, there are many other e-trading services that are not. To stand outfrom the crowd, banks need to offercustomers services to cover all their FXtrading requirements, from pre-traderesearch and analytics through tosettlement.

Our leading providers differentiate

themselves by supporting the full range of

services available on FXall – deep liquidity

in major and exotic currencies; non-

deliverable forwards; money markets

trading and confirmation; portfolio trading

for asset managers; and support for a

broad spectrum of post-trade processing

services including third-party notifications,

prime brokerage give-ups and our

database of settlement instructions.

Lowry: What is becoming commoditised is

price. In addition, the way price is delivered

is also becoming commoditised. As the

industry moves toward standards such as

FIX for both Request for Quote and

Streaming Quote, the value proposition

comes from enhancing the workflow. We’re

very familiar with this space: nineteen of the

top twenty investment managers in the

world use Global Link. We’re in constant

dialogue with our clients about the issues of

best process and best execution. I can’t

underscore enough how important

workflow is in FX. You can have the best

STP in the world, but if you don’t have the

process right, you’re not adding value.

Spurr: It is true that the focus of investment

on the RFQ model is creating homogeneity

across the banks. In response we have

spent a lot of time talking to our clients to

understand what is it that they need to be

more successful in a competitive

environment. Although it is easier to have

access to electronic FX execution, this is not

always accompanied by added value

services, such as pre and post trade

analysis, STP and continuous training and

support.

We feel that execution as you say is very

similar between the big banks, however we

have found that clients are more interested

in what additional services we can offer as

well as what new products we are bringing

into the market place. Whilst RBS have

similarly invested in this service delivery,

we have also been at the leading edge of

offering clients a more extensive range of

trading options and pricing ‘styles’ on line,

including; RFQ, Streaming, benchmark

fixings, price in advance, options orders

and post trade services all of which are

supported by full API STP.

Do you think these clients are getting the

maximum value from their e-trading

technology or do some aspects of their

business and operational processes still

offer opportunities to leverage ecommerce

and unlock even greater value for them?

Mackaman: There are many opportunities

to add value to the client’s trading

experience. Let’s look at three

opportunities, beginning with third-party

FX. While many managers still look at FX as

an operational pain point, we feel that the

growing STP benefits of eFX trading will

encourage them to trade third-party FX.

Client benefits include satisfying fiduciary

responsibilities of best execution while

avoiding the need to build their own FX

desk. The second opportunity is integrating

eFX platforms with other providers or our

internal systems. For example, BBH’s

Infomediary® product can be used as a

strategy to replace or supplement our

clients’ middle office activities and SWIFT

messaging requirements. Finally, we

foresee additional opportunities in share

class hedging with offshore investors.



Ruth Mackaman

“There are many opportunities to add value tothe client’s trading experience.”

Mark Warms

“The investment management industry iscontinually evolving”

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Warms: Asset managers now have access

to a wealth of e-trading tools that reduce

risk and improve efficiency for every stage

of the transaction lifecycle. One of the

trends we are noticing is that asset

managers, under pressure from investors

to prove best execution, are increasingly

looking to trade with third party liquidity

providers rather than with their custodian.

Before the advent of online trading, it was

difficult to guarantee timely settlement

when trading with third parties - so asset

managers often chose to trade with their

custodians, sacrificing best execution to

ensure the funds were there on time. With

FXall’s third-party notification functionality,

that’s not necessary – asset managers can

trade with third parties as easily as with

their custodian.

Lowry: There have been great strides in

the buy-sides’ uptake of technology over

the last several years. There is still room

for improvement. Standards will develop

to encompass various asset classes. Order

management systems will evolve to take

advantage of those standards. Concurrent

with those events, there are great

opportunities to readdress how investment

decisions are made, implemented, and

reported. For example, many firms

still do not have a central FX desk.

They have many points of execution

within a firm. Bringing all those points

together for more efficient execution is still

on the horizon. This is precisely where

Global Link’s workflow connectivity team

spend most of their time: examining the

different sources generating FX

requirements and implementing a unifying

FX workflow solution.

Spurr: Clients have different levels of

sophistication when it comes to

eCommerce and technology. Imagine a

curve where you could have 3 levels of

client “experience”. Clients who have no

knowledge, the ones who have had some

experience and finally the ones who have

fully embraced the new developments. In

each of these categories there is value to

be unlocked by RBS offering superior

technology, connectivity and execution as

well as leveraging the eCommerce to offer

value in different Asset Classes and more

traditional business areas.

The investment management environment

is growing more complex and challenging

and with it the need for a more efficient FX

process. Looking ahead, what are likely to

be the greatest challenges facing eFX

providers in helping these clients meet the

demands of the future?

Mackaman: The most pressing challenge

for providers will be to anticipate and

respond rapidly to new and more

sophisticated trading strategies. We must

also meet the technical demands as our

clients build or buy new order

management systems for tracking their

own equity, fixed income and derivative

activities. As the investment managers’

business and product offerings continue to

grow, our best strategy is to take a

consultative and proactive approach to

industry changes to provide eFX offerings

that meet both industry standards and

specific client needs.

Warms: The investment management

industry is continually evolving; as it

develops, so do the FX trading

requirements of asset managers. Talking to

our customers to ensure that we continue

to deliver the tools they need is at the heart

of FXall’s business, and is one of the

reasons for our success in building a

strong customer franchise with asset

managers. Along with the rise of third-

party dealing, one of the most important

trends in the asset management industry is

the emergence of more stringent internal

control and compliance procedures.

Electronic trading platforms like FXall,

which have control features embedded

within them, provide asset managers with

a quick and easy way to bring their internal

controls up to speed.

Lowry: The biggest challenge to portals in

the future will be the struggle to remain

relevant. As price and price feeds become

commoditised, client demand will shift –

and is already shifting – toward value

added services such as best process

implementation and workflow consulting.

Banks will be expected to offer an eFX API

and those portals which only provide price

discovery or execution will become little

more than marginal utilities.

Spurr: I think that the greatest challenge is

for us to provide clients with a cost

effective solution which will allow them

good execution, STP and transaction cost

analysis efficiencies. At the cutting edge of

the market, our most sophisticated clients

continue to drive innovation and

efficiencies through the deployment of

sophisticated trading technologies.

Servicing these clients drives the cycle of

product and delivery innovation and

continually drives up efficiencies for all of

our client sectors. Investment in this

process will always be a challenge but this

is a market place that RBS are committed

to serving and has delivered us the

successes that we have enjoyed recent

years, placing RBS as a top tier e-

commerce bank.


Martin Spurr

“Clients have different levels of sophistication when it comes to eCommerce and technology.”

Chip Lowry

“There have been great strides in the buy-sides’ uptake of technology over the last

several years.”



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allowing the trader to selectively intervene and apply the

nuance that many call the “art” of trading. The best automated

systems also have at their core advanced historical testing

systems, which allow the trader to build, refine, and deploy

their trading models. These historical systems aid the trader in

three main ways: system design, system optimization, and risk

assessment.

System Design

The design of a system is usually based upon a trader’s

observation of actual price action or chart patterns. Using these

observations the trader is able to create an idea of a system, but

since the observations are conducted within a small time frame,

their validity is not certain.

“A good historical test provides awealth of data, including net pips,maximum drawdown, consecutive

losses, and success rate, et al.”

Once the system’s construction is formalized in an automated

trading platform, a historical test will provide the trader with an

instant litmus test of the system’s value. A good historical test

provides a wealth of data, including net pips, maximum

drawdown, consecutive losses, and success rate, et al. These

metrics give the trader enough information to make a rapid

determination of the system’s worth. If the system is obviously

bad, another direction can be chosen. If the system is good or

looks to have potential, further scrutiny is warranted.

In some cases the high level test metrics will give mixed signals.

For example, the test may yield overall positive results but there

may be indications that the exit system employed needs to be

adjusted. A quick look at the actual trades of the test will

usually show the reason why the exit system failed. Using this

combination of high-level metrics and detailed trade analysis,

the trader can hone the system into a quality real trading

candidate, ready for optimization.

Historical TestingLeveraging online tools formore consistent FX trading

By Scott Owens, CEO, FX Engines

Interest in automated trading systems has surged recently, fueled bythe FX market’s unique trading environment. Traders who hadpreviously specialized in equities or futures are often shocked by thephysical and emotional demands of forex. The inability to manage a24-hour market prone to frequent, volatile price moves has left manyeager FX market entrants on the sidelines, their accounts liquidatedand their courage spent. In automated trading they see new hope.


System Optimization

In some cases the methods for optimizing a system are obvious

– adjust a stop, change an exit signal, change the entry

schedule, etc. In other cases the methods are not so clear, and

that’s when an automated optimizing system is of tremendous

value. One such tool is the Back Test Multiplier from FX Engines.

The Back Test Multiplier takes a number of different systems,

breaks them down into their component parts, then recombines

them into a multiplied number of systems. This method creates

systems that the trader might not have had the time or creativity

to discover otherwise.

In the example above, three trading candidates were broken

down into their component parts, as shown. Each had a

different entry signal, entry schedule, and exit option. Two of

the systems had a market entry, the third a stop limit entry.

Using these component parts the historical testing system

multiplied the 3 systems into 54, then ran a test on the newly

created systems.

It’s not difficult to see how an automated optimization tool like

this can help traders. Multiplied tests are just one of many

methods to help the trader avoid some of the pitfalls of

historical testing, the most serious of which is curve-fitting. All

historical tests suffer from a small degree of curve-fitting, but

when too much emphasis is given to one factor or set of

conditions in a test, the test results can be negated.

The system optimization step can result in the creation of new

systems, modifications to existing systems, or the elimination

of a system altogether. Once a system has been optimized

it can be migrated to live test trading and eventually to

real money trading, but not before a risk assessment has

been completed.

>>>

“All historical tests suffer from a small

degree of curve-fitting...”


Risk Assessment

Historical tests reveal a number of factors which combine to form a risk profile for a particular

system. When a system has a long track record of actual trades, these dynamics are well known.

“Historical tests, in particular, provide a rich analytic

framework for ascertaining a system’s ability to cope with

the factors that influence risk.”

But the trader who deploys a new system usually does so without the advantage of this live

trading perspective. For these traders, historical and live tests are the best substitutes for actual

trades. Historical tests, in particular, provide a rich analytic framework for ascertaining a system’s

ability to cope with the factors that influence risk. An expertly implemented historical test uses

multiple years of tic data, employs that data in a real re-enactment with real trading constraints,

and works in a way that the trader can replicate in a real-time, real-money account.

Using the data from historical and live tests, the trader is able put a formal risk assessment in place.

Position size, strategies for consecutive losses or gains, drawdown risk, and other elements of

money management can be factored in at this stage. The system’s place among the trader’s existing

portfolio can also be considered here, as the current set of systems is shuffled and re-prioritized to

make way for the newcomer.

Since the historical test system is so closely aligned with the actual automation system, the risk

assessment provided by historical tests is usually quite accurate. With an optimized, tested

system and a reliable risk assessment in place, the migration to actual trading can begin.

Migrating Tested Systems to Trading Systems

Historical tests, no matter how accurate, are no replacement for actual trading. The first step

towards exposing a real account to a system is to conduct live test trades. During these test

trades new issues or opportunities may arise that were not visible in the historical test. For

example, if the historical tests showed that mechanical exits were sub-optimal, manual exits may

be employed with great success in test trading.

In the ideal implementation, these final steps take place in the same environment that was

employed for historical testing. Ensuring this system continuity means that historical tests and

actual test trades will carry over into real money trades with similar results. If the historical

testing system was not synched with the live system, either in design or data feed, this final step

of live testing will bear that out.

Once a system has emerged from this process of historical and live testing with the satisfaction

of the trader, the migration to real trading can be completed. Since the trader has put the system

through a battery of tests that very closely simulate actual trading, this step is usually completed

with an extremely high level of confidence. In that regard, automated trading is no different from

its alternatives – confidence is a key ingredient to success. The online tools emerging to serve the

burgeoning forex marketplace will increasingly arm the trader with more confidence and

discipline, with greater profitability as the attainable goal of all traders.

Retail FX has attracted thousands of traders with the lure of

potential returns unmatched by futures or equities. Quick to

explore new opportunities, these traders hope to recapture the

excitement and windfalls that have eluded them since the

bubble burst. For most, it is immediately apparent that the

global, 24-hour fx markets are very different from their other

trading experiences. They also quickly learn that virtually no

tools exist to help them offset these differences and capture

trading profits.

The FX Engines trading platform is the first toolkit designed to

specifically address the unique challenges of trading forex. FX

Engines allows traders to quickly build, test, and deploy trading

strategies without the complexity of programming or the

demands of manual trading. With its complete trade life cycle

approach, the FX Engines trading platform arms the trader with

the tools and flexibility needed to trade successfully.

Using FX Engines, the trader can automate all or part of the trade

life cycle, with confidence that real trades will be executed on the

same system as their tests. Whatever the specific trading tactic,

FX Engines allows the trader to focus on high-level trade

management, rather than battling the physical and emotional

exhaustion that renders manual tools ineffective.

FX Engines delivers features critical to fx traders:

• Fully or partially automated trade execution

• System development without any programming

• A tic based historical and live testing system

• Automated test optimization tools

• Free real-time charts and unlimited testing

• Real, test, and historical trades on one platform

• Live trade execution through multiple dealers

• A hosted, redundant software architecture


FX Engines: a world-class fxtrading environment debuts

For more information contact:

[email protected]

www.fxengines.com

Although the notion of constant Internet connectivity as anecessity may not be universally accepted, traders in the24-hour global Forex market would agree that continuousaccess to their account is far from a luxury. The ‘breakingnews’ effect on foreign exchange rates is practically instant,unlike, say the stock market where participants often haveto wait for the exchange opening to see the impact onshare prices. This renders constant connectivity to themarket – anytime, anywhere – a particularly topical issuefor currency traders.

As mobile technology continues to redefine its role in the daily life of traders, the benefits

reaped from this evolution by the Forex market can be immense. While providing release

from Forex “separation anxiety” experienced when away from the PC trading station

during key releases and major market moves, the continuously improving technology

also arms traders with access to the main functions of the market.

Staying connected wirelessly

When choosing the method of mobile access and service plan, traders must make

certain that their currency broker or market-maker maintains a handheld-enabled

version of its trading platform (see example). Though many mobile providers on the

market claim advanced technological features, these functions are of no practical use

if your broker does not carry a trading platform developed specifically for

compatibility with these devices.

Due to certain functional limitations, mobile trading platforms are restricted to only

core features. Yet, many platforms will allow traders to receive rate alert signals on

their devices, check the recent price action on a chart and place a trade with an

assigned stop-loss and take-profit order.


Improvingconnectivitybetween the trader and the market

Vassili Serebriakov works with MG Financial Group.


Types of connectivity

• Mobile Phones

Extremely portable and web-

ready, mobile phones generally

support access to forex news,

account status reports as well as

the most basic trading functions.

Due to limited hardware, mobile

phones lack adequate charting

facilities, while their minimal

resolution confines information

to a small screen area often

requiring much scrolling using

awkward navigation controls.

• PDAs

Equipped with relatively

powerful hardware and

acceptable display resolutions,

PDAs support robust trading

applications, increasingly

resembling those on desktop

PCs. With touch-screen

navigation and improved

screen sizes, traders are able to

keep the market at their

fingertips.

• Laptops

While essential operations can be performed through a mobile

phone or a PDA, more substantial chart analysis and trading in

several market instruments require the facilities provided only

by the desktop or laptop PC. Thanks to the emergence of

broadband wireless technology, mobile phones can also be used

as an Internet modem for a laptop PC. Internet capable phones

can be connected to a laptop PC using a USB cable or Bluetooth

technology. Furthermore, ‘Aircards’ allow direct cellular

Internet connectivity from a laptop without the need for an

additional device.

• WiFi

With the emergence of WiFi hotspots around metropolitan areas,

wireless internet access for traveling traders is becoming a high-

speed reality. As the most practical and fastest method for laptop

and PDA connectivity, WiFi continues to be the concentration of

wireless providers like T-mobile, who plan to install over 20,000

WiFi hotspots around the world, including commuter trains in

the U.K.

Security

Security of data and information is an important consideration

for market participants. The security measures adopted in

wireless trading are similar to those used for Internet sites and

wireless Web sites: Security Socket Layer (SSL) and HTTPS.

Major institutions that conduct credit card payments and online

banking transactions utilize SSL security, which is one of the

safest and most secure systems in existence today.

Conclusion

Mobile phone and PDA devices are powerful tools that open up

many opportunities for FX traders. Traders, however, must

recognize that due to their inherent screen space limitations,

these devices are best used as compliments to conventional

trading through a PC. The growing speed and versatility of

wireless broadband creates exciting synergies between

handheld and laptop devices.

Example:

MG Financial Group, a leading New York based online

foreign exchange firm offers wireless trading through its

proprietary software MG DealStation. To facilitate

navigation MG wireless platform is conveniently divided

into several main Tabs such as Rates, Orders, Trades,

Status, Charts and News. Traders can choose between

Market, Stop and Limit orders. To obtain a list of Open

Orders, Open Trades and Settled Trades, traders click on the

Status Tab and generate a report for a selected time frame.

The News and Charts tabs make available news articles

published on forexnews.com and allow to access currency

charts. Traders can select the chart time frame ranging from

5 min to 1 week. Charts and Rates are updated by pressing

the refresh button on the wireless device.

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The e-Forex InterviewThe e-Forex

InterviewWith Andrew Kidd, Executive Director, European

Head of FX eClient Development at ABN AMRO

>>>

Andrew, the e-channel has benefited from a number of pioneers on

the buy-side who recognised the benefits of e-dealing and gave a

lead for others. On the sell-side, is it the role of the major global

liquidity providers, like ABN AMRO, to be the pioneers and if so,

does that confer any competitive advantage?

Our strong belief in the concept certainly contributes. However,

being a major global provider, with access to the resources that go

with that, in what is in effect a technology arms race, is vital in

retaining our edge. The winners on the sell side are both the largest

players - who will continue to become larger in the consolidation

we are witnessing - and those with the entrepreneurial vision to see

where the market will be in the future. The other beneficiaries are

the new players that have been able to start from scratch with a very

low cost base, not get caught in the internet bubble a few years back

and have strong technical capabilities.

ABN AMRO launched its proprietary trading platform, DealStation

in 2000. How different is the platform today from what it was 5

years ago?

Visually the platform has not changed a great deal, but much has

gone on at the back end and behind the scenes at the very core of

the systems. Automating more currency pairs, improvements in our

electronic pricing tools and to speed of price delivery and rate

management have all been key in delivering a very strong offering

that has allowed ABN AMRO to see a large percentage increase in

on-line activity.

We have also focused on delivering where our clients have

demanded our time and effort – for example on providing liquidity

directly to clients via an API. In addition the processing side has

been important, particularly through the various FX Prime

Brokerage initiatives. This has created efficiencies for all parties.

The bank offers a very broad range of e-Trading services. Have you

made any key recent enhancements to these or to the functionality

of the DealStation platform?

Technology continues to develop and allow greater efficiencies.

DealStation has recently been joined by DealStream, a lightweight

GUI addition to our newest, evolving API technology, aimed primarily

at the professional trader with its quick one-click environment. We are

also working alongside colleagues elsewhere in the bank - especially

in Trade and Cash management - to develop an all encompassing

treasury portal that will incorporate a range of tools – such as

FX&MM, liquidity management and cash management - in one site.

This will be relevant to the full range of clients but will have a

significant impact for SMEs and corporates. We also continue to fully

support initiatives from the major ECN’s who serve the needs of

clients that prefer or need a one-stop shop for technology

connectivity.

You operate eDesks in Amsterdam, Chicago and Singapore with

specially trained e-commerce support staff. What impact has this

strategy had on your success as a leading eFX provider?


Client Relationship Management is more critical now than ever

before in the market. From the outset we knew that the service we

provided around our technical offerings would set us apart from the

competition. Providing a combination of technical, market and

client specific support from our key regional hubs has created a

unique bridge between our internal groups and clients, helping to

make the whole process as seamless as possible. This one-stop-

shop approach gives our clients a more in depth relationship, rather

than the ‘faceless’ administration function that call centres provide.

Offering a comprehensive suite of e-products is essential for client

acquisition. Do you think that’s enough for eFX providers to

successfully retain them and secure their loyalty?

Different clients have varying needs and buying patterns. Functionality

alone will not necessarily buy loyalty, but it is essential. We have to

remember what our underlying business is about - providing ample

liquidity, competitive pricing and efficient transaction processing. So,

for the most part, loyalty is secured by creating an environment that

creates a fast, secure trade execution on a stable technology

environment with no - or low - incidents of error, improved price

transparency with access to an automated settlement process.

Many banks are reporting rising e-volumes. What other factors

apart from improvements to the functionality of their offerings are

likely to be responsible for this?

One of the reasons for the rising e-volumes directly relates to the

overall growth in institutional interest in FX as an asset class. Client

driven demand for technology enhancements from their bank’s

proprietary platforms, coupled with the rapid growth of multi-bank

platform liquidity and functionality, have also contributed. Another

factor is recognition by clients of the benefits of electronic

execution, mainly from the standpoint of ease of execution. As

clients continue to source market liquidity on varying e-channels,

banks that are clearly in this space recognise the need to be

integrated to all potential client touch points (proprietary platforms,

multi-bank platforms, ECNs). We recognise this evolution and are

well positioned to meet these needs and capture client flows.

Do you think that the growth of new client numbers using the e-

channel is to some extent concealing the effects of consolidation

within the industry and we may not really see the effects of this

process for some time?

With so much emphasis placed on the larger institutions, all of

which seem to be doing ever increasing volumes the answer is a

resounding yes. We live in an era of banking industry consolidation,

let alone FX consolidation, and the dialogue in any conversation

always comes around to what next for the marketplace, with a

single exchange being the primary discussion point. Having created

a series of mini exchanges around Single Bank Portals and ECN’s, a

lot of effort is being pumped into outsourcing, Prime Brokerage and

CLS initiatives. These may herald the coming of an entirely different

industry business model. Whether it comes in three years or 10, or

at all, this year I believe will be a pivotal year for determining the

final outcome.

ABN AMRO has participated on

a variety of the multi-bank

platforms and clearly supports

their value proposition. Do you

anticipate that single bank

platforms and multi-bank

portals and aggregators are

likely to co-exist for a

considerable time to come?

We have never hidden the fact

that we will support our clients

with liquidity and other

ancillary services on platforms

that we feel will gain sufficient traction. With so many of our clients

equally happy with our proprietary offerings, as the market stands

today, single and multi-bank offerings can comfortably co-exist.

Indeed I believe it is healthy for the market that they do co-exist. The

one overriding aspect to this is the potential for a single exchange

environment. Market forces are greater than any one or group of

participants in the industry. If change in the markets takes us to a

new way of doing business, there is little that can be done to alter

that path or pace of change.

We are starting to focus on the opportunities presented by new eFX

services like Prime Brokerage and White Labelling. Do you think that

only the really big FX e-commerce players, like ABN AMRO, with

sufficient scale and leverage will be able to take advantage of them?

We are anticipating this year to be a big year for Prime Brokerage

and similar services. Only those that have the scale and leverage

will benefit, given the significant undertaking to provide the

necessary infrastructure to support these services. We strongly feel

that only banks like ourselves (i.e. those already leaders in the

Prime Brokerage space) will be positioned to capitalise on the clear

shifts of the market to prime brokerage services and white labelling

opportunities.

You’ve said in the past that one of the greatest challenges facing

eFX providers in meeting the needs of clients is achieving full

integration of services. How much progress has ABN AMRO made

towards this key goal?

STP has been the holy grail since the earliest discussions of ‘e’ in

FX. There are so many disparate systems, and many that are

bespoke developments for clients, that for the most part the notion

of banks becoming yet another software provider does not bear

thinking about, regardless of the costs associated with it. So we

have concentrated on offering our clients the benefits of integrated

services by providing full access to the required data via our API’s.

Those clients unable to do their own code writing tend to be driven

to the ECN’s, who by definition of their role and position need to

offer those integrated services. In a transparent marketplace that is

witnessing spread compression and consolidation, the broader

answer which will satisfy both the buy and sell-side going forward,

is standardisation in software protocols. With the FIX protocol

having played such a big part in the integration of services in the

equities and FI markets, it will not be long before it is more widely

used within FX, thus bringing the barriers to entry down.

The e-Forex Interview


A Product Disclosure Statement for CMC’s derivative products is available from CMC Group and should be considered before deciding to dealin CMC’s derivative products. Derivative products can be risky and are not suitable for all investors, it is advisable to seek independent advice ifnecessary. This publication is intended to be used for information purposes only and does not constitute investment advice, and is not intendedfor solicitation purposes. CMC Group Plc is a member of the NFA and CMC Group Asia Pacific Pty is an affiliate who is regulated by ASIC butis not a member of NFA in it's own right. CMC Group Asia Pacific Pty Ltd (ABN 11 100 058 213) AFSL No 238054, NFA (ID 0293966).

Sometimes, the biggest risk in Forex tradingis your Forex trading platform.

Fingers crossed, your platform won’t crash at the critical moment. Like during “the numbers.” But with so much demand at these times, many platforms do – leaving your profit (or your loss)stranded. At CMC, we’ve won awards around the world for the quality and reliability of ourMarketmaker trading platform, which completed the world’s first online Forex transaction back in1996. And our performance today is the result of continuous development, heavy investment, andour in-house army of software developers. Because we believe professional Forex traders shouldbe able to trust their trading platform. And not just their luck.

Get Forex trading you can rely on: call 1.866.367.3987or visit www.cmcforex.com

In foreign exchange,the most importantexchange starts here.

You and us.

At UBS, foreign exchange starts with the exchange between you and us. Understanding your needs. Tailoring FX

solutions to your requirements. And transacting them through execution systems that are unequalled worldwide1.

It's an approach that has won our FX business global recognition2. And helped our clients to feel more confident

about the FX decisions they make. Global FX strength, bespoke FX solutions. You and us.

www.ubs.com/investmentbank

1 Best Bank Overall in Electronic Trading and #1 in Electronic Market Share, Euromoney FX Poll (2004); Best Bank in e-FX, The Banker (2004); Best Single Bank Trading Platform, FX Week Poll (2004); 2 #1Foreign Exchange House, Euromoney FX Poll (2004); FX House of the Year, The Banker (2004); Best Overall Bank in FX, FX Week Poll (2004).Issued in the UK by UBS Limited, a wholly owned subsidiary ofUBS AG, to persons who are not private customers. In the U.S., securities underwriting, trading and brokerage activities and M&A advisory activities are conducted by UBS Securities LLC, a wholly ownedsubsidiary of UBS AG that is a registered broker-dealer and a member of the New York Stock Exchange and other principal exchanges and SIPC.©UBS 2005. All rights reserved.

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