Currenex Making All the Right Moves in Corporate FX

Currenex is a multibank foreign exchange dealing platform. It was designed for corporate clients wanting to request dealing prices from a variety of banks at the same time, and grew out of an early e-commerce private network effort originally called FXFox. The system gained early support from a number of corporate clients, including MasterCard and Intel. Spot, forward outright and swap transactions are all supported, with currency options dealing reportedly in development this year. A complete order management module is also scheduled to be up-and-running by early spring. The system is very configurable and user-friendly. Clients can show their interest to just one bank or to several, and can receive quotes back in two fashions: at the end of a given window of time or on a single-bank "fast quote” basis. Not in a hurry to get filled, but need to ensure that you get the very best price at the moment you do? Currenex basically allows a mini-reverse auction. If you're in a bigger hurry, "fast quote” allows you to respond immediately to individual bank prices as they arrive. This nicely captures the tradeoff between ensuring competition and speed of execution, but appropriately leaves the route chosen in the client's hands. The system also has a well-designed chat functionality. Currenex has had far more success to date than other bank-to-client portals such as CFOWeb, but its true test will come as consortium efforts FXAll.com and Atriax develop. Will the independent platform that Currenex currently offers be able to handle the powerhouse of banks behind the competing bank consortiums? This remains to be seen, but to date, this web site has made all the right moves. — B.L.

FXall First Multibank FX Portal for End-Users

The FXall.com multibank currency trading web site isn't quite up-and-running yet, but it's getting close. On January 22, FXall.com launched a new enhanced version of its web site featuring a trading demo of how the system will look and feel. The final product is scheduled for release at the end of the first quarter. If the actual system is as good as the demo, corporate treasurers have something to look forward to later this year. The system promises the ability to see and trade live spot, forward and options prices supplied simultaneously by participating dealers—which now number 31. Customers will be able to request a two-way price with maximum dealing size set by individual dealers. Dealers will control the currency prices, and determine whether to respond to price requests automatcally or manually. Options will not be available in the initial release, but CEO Phil Weisberg promises to make them available "as quickly as we can get them out.” Although there will be no order management system in the initial release, the platform will eventually allow a customer to leave limit orders with banks of its choice. "Clients often leave overnight resting orders all over the place and lose track of them,” says Weisberg. "This is why comprehensive functionality is critical in a portal. When the market moves and they want to cancel them, our clients will be able to do so with one button. And when they come back to the office the next day, they'll get a full report of what's been executed. That's what our order management system will provide, and it will be available almost immediately after launch.” Clients will be able to deal for multiple accounts simultaneously and then break down the deal into its component pieces, and will also be able to trade in multiple currency pairs at the same time. A cut-and-paste ability will allow a client working with, say, an Excel spreadsheet to feed a series of price requests directly in and out of the FXall.com portal. Tic charts and supporting bank research is also promised. FXall's core routing techology was developed by AVT Technologies, but the firm has been working with Cognotec, Reuters and others to make sure other rate engines are compatible with the FXall system. FXall.com is an idea that has already generated support on both sides of the currency market, but at the same time may squeeze bank currency dealing revenues. — B.L.

GAIN Capital and FXCM Two Internet Davids Trying to Slay the Goliaths in Spot FX

Cash foreign exchange has long been the bastion of banks, corporate clients, central banks and hedge funds. Small speculators were more or less relegated to the pits of the International Monetary Market, where, for a variety of reasons, currency futures trading has become less and less liquid in recent years. The advent of the Internet, however, and the new jurisdictional powers of the Commodity Futures Trading Commission over the foreign exchange cash market (put into place last December as part of the Commodity Futures Modernization Act of 2000), promises that non-bank currency dealing web sites may become one of the fastest growing segments of the electronic trading universe. Indeed, some of the functionality of these sites make some of the traditional bank e-commerce efforts pale in comparison. In this space, two companies seem to be at the forefront: GAIN Capital and Forex Capital Markets. Retail traders, commodity trading advisers and even modest-sized corporate traders should give these sites a close review. It may be that in a David vs. Goliath way, either of these companies would fawn over business that the big banks would invariably mark up against the client. GAIN Capital was launched by Mark Galant, a former global head of currency options at Credit Suisse and senior executive at derivatives risk management systems vendor FNX. Galant and his team have designed an ergonomically friendly main client screen that squeezes in almost everything a trader could dream of. A deal execution window publishes two-way price quotes. To trade, just enter the number of base currency lots (each lot representing 100,000 of the base currency) that you want to buy or sell, and your trade is automatically executed at that price. You can keep up to five dealing pairs displayed at any given time, change these selections at the click of a button, and watch the blended price of multiple other currency pairs update from competing banks just to the right of this window. What makes GAIN potentially so attractive is that there is no tiering of price spreads or shading of quotes—both practices far too common at major banks. Underneath, there's a position management window that lists your current positions by currency pair, including real-time U.S. dollar-based profit and loss by position. P&L and margin availability is updated in real time. Client funds are held in an interest-bearing account at Citibank. Leverage up to 50:1 is possible. There is an activity log of all business completed or attempted during a single log-on session, and the ability to leave orders and track how close they are to being filled in real time. Day orders, good-till-cancelled orders and one-cancels-other orders are all supported. Finally, in the bottom right corner of this master page, there is a complete deal blotter that can be sorted in multiple ways. If that's not enough, the system has a charting tool supported from a nearby tab that allows you to view customized charts for multiple currency pairs, time periods and chart types. Japanese candlestick charts are even available. GAIN Capital also provides news feeds and its own market commentary written by an actual dealer on the firm's broker desk. The system is supported 24 hours a day from the company's offices in Warren, New Jersey, by a team of experienced market-makers you can also contact by phone for dealing prices. In that case, a verbally executed transaction would then be entered into your electronic account by GAIN. Positions not closed out by 5:00 P.M. each evening are rolled automatically for the client at a fair market rate that is adjusted into the price of the preexisting position. Despite these niceties, this system does have its limitations. GAIN does not yet support every currency pairing you can find elsewhere, and the maximum available deal size on-screen is only $2.5 million (GAIN does accept phone deals up to $10 million). There is currently no forward outright dealing capability for those who also want the exposure of relative interest rate changes, and once in a blue moon during fast markets, dealing prices on the screen are put under reference. If you want to execute during those moments, you will have to call in. What makes the system potentially so attractive, however, is that there is no tiering of price spreads or shading of quotes—both practices far too common (even electronically) at major banks. With GAIN there is just one price for the world and that price is guaranteed to be 5 pips wide even during early morning Australian trading when market prices can be notoriously wide and thin. Euro-U.S. dollar spreads are just 4 pips wide. Forex Capital Markets, meanwhile, is the New York-based brainchild of Drew Niv, a former MG Financial bond trader, who has put together some solid private funding for this web offering. The web site, FXCM.com, has a very similar look and feel to GAIN Capital and similar rules: margin is typically held at Citibank, and all prices on the system are dealable to the world without spread tiering or manual shading of prices. It's still a one-price-for-the-world-type strategy, and on that basis, Niv claims the company did $10 billion worth of business in December alone, totaling 27,000 discrete trades. FXCM.com also has a broader array of currency pairs than GAIN currently offers, and guarantees its prices for up to $10 million in notional. In addition, the company is in the process of registering with the CFTC, a decision GAIN Capital seems to be leaving on the back burner. But with FXCM.com there is a major quirk to watch out for: its margin policy varies by account size (with smaller accounts for some reason requiring less margin per lot than large accounts), and unless one has a margin account greater than $50,000, holding positions overnight will always produce a rollover charge, even if you are long the higher-yielding currency. This policy seems patently unfair and may impinge upon the credibility of this firm. Alternately, FXCM.com may have purposefully established this policy to discourage smaller-sized accounts. Niv of FXCM.com claims to have 1,000 clients on the firm's roster, 80 of which are either hedge funds or commodity trading advisers, and the largest of which holds a margin account of $1.5 million. But with his next breath, he says the average margin account is just $15,000 in size. Given the rollover policy, does that make any sense? With these types of smaller non-bank firms, a good round of due diligence and scrutiny of the small print is always going to be necessary—even if the technology looks pretty nifty. — B.L.

CSFB and UBS Warburg Two Leaders of the Pack

A year ago, Derivatives Strategy found that very few banks had user-friendly web sites up-and-running—even in the highly liquid and fungible foreign exchange space. The one exception was Credit Suisse First Boston's PrimeTrade system—with its embedded PrimeFX product—which was already running and continues to receive the market's praise (see "CSFB Leads the Way,” April 2000). Since then, Philippe Buhannic, the original PrimeTrade system developer, left CSFB to found TradingScreen.com. But PrimeFX still appears to be the current leader of the pack in foreign exchange bank platforms. Over-the-counter currency options aren't yet part of the system, but CSFB now boasts 1,500 active PrimeTrade users at 300 different firms. Although the look and feel of the system are clearly first-rate, the bank is allowing clients onto the system sparingly and dealing limits are still for small size, as CSFB feels its way into this new e-commerce world. The main difference from last year to this year is that PrimeFX has now been fully integrated with the other PrimeTrade modules. It is easier for a corporate treasurer or hedge fund manager to deal fixed income, futures and foreign exchange all electronically—each just a tab away from the others. CSFB also promises a new version of the system—PrimeTrade2— later this year. It will have a thinner client interface and will use more sophisticated browser technology. Coming on fast But in foreign exchange markets at least, PrimeTrade faces some new fast-footed competition from UBS Warburg. A year ago, UBS Warburg's new TP Trader spot dealing product was just a dream on the chalkboard. Now UBS is doing more than 20 percent of its daily ticket volume with external clients via this system and another intrabranch cousin to it. Both are supported by what the firm calls its Fx2B auto-pricing engine. The TP Trader system, which is based in Zurich but supported globally, sports real-time prices in more than 80 currency pairs and major cross rates. Client uptake and trading volumes continue to grow. UBS's I-DEALer, a Java-based web application, allows clients to trade both vanilla and exotic OTC currency options over the Internet. "Electronic channels are the future in spot foreign exchange,” says Fabian Shey, managing director and head of global e-commerce for the treasury products division of the bank. "Even on the client side, e-trading—through a variety of channels—will likely exceed 50 percent of total foreign exchange volume in two years. The number of clients migrating to deal with us via electronic mediums continues to rise. We are also finding that clients are doing more trading volume after receiving an electronic platform. They often cite ‘ease of process' as the primary reason for this.” UBS's core transactional engine was designed in-house, with Shey himself finding his roots in the complicated world of exotic currency options. Perhaps because of this, in the past year UBS has also rolled out I-DEALer, a Java-based web application that allows clients to trade both vanilla and exotic OTC currency options over the Internet. Shey claims that the system already has 160 active client institutions live, and that the pricing is done by the same automatic pricing engine (Fx2B) as TP Trader, with the deal flow simply being overseen by an experienced trader. Nowhere else on the Internet is there a single bank platform capable of pricing up a double no-touch option or similar exotic options in such a streamlined manner. UBS Warburg deserves kudos for its progress in this area. The occasional freeze Small glitches and bugs still exist, of course, in both the CSFB and UBS systems. Order management and position management capabilities continue to be improved, but when you try to deal on a given price quote, the systems have an occasional proclivity to freeze up for a few seconds before coming back with a proposed fill. Perhaps this is more a bandwidth delivery issue than a system problem, but it's worth mentioning. Nowhere else on the Internet is there a single bank platform capable of pricing up a double no-touch option or similar exotic options in such a streamlined manner. At other times, you might try to hit a 57 bid, but when the bank side responds, 53 might be the best proposed "hard price.” This is because bank traders still have an intervention capability to override or change an electronic price after a customer has already entered a transaction request. Prices are closer to a "hard indication” than an actual dealing price until the bank takes a look at the transaction and marks the deal as booked. Prices can also turn "yellow,” which means they are momentarily not dealable for some reason, whether because the dealer is momentarily away from his desk or news is out and the markets have become "fast.” Lastly, trading sizes still tend to be limited to under $5 million per transaction. How many clicks of the mouse does it take to deal on CSFB's PrimeFX or UBS Warburg's TPTrader? On both systems, you start by clicking on the desired currency pair, hitting another button to indicate whether you wish to buy or sell, entering an amount such as "5M” for five million, clicking on a request button, and then finally clicking to either accept or reject the dealer response. So let's call that five steps, with a few extra keystrokes to enter the trade size. That may sound acceptable, but at times the response time between the request stage and the accept/reject stage can expand to 15 seconds, leaving a customer with the unsatisfied feeling of not knowing whether a deal has actually been done. One client claims that if the market turns particularly volatile, the UBS system also has a tendency to freeze, with prices subsequently tumbling over themselves when the system finally unlocks. But on other fronts, UBS's decision to originate its system from one central locale may be a relative plus. CSFB runs its system on a 24-hour basis, but does so from different servers in different geographic locales, with separate trade blotters and confirmation processes. For an active corporate treasurer or hedge fund manager trading around the clock, this may be an irritating setup that requires a lot of logging on and logging off different web sites as the trading day winds its way around the world. In lieu of all of an entity's trades residing in one place, they end up residing in three separate locales. UBS Warburg deserves kudos for its progress in this area. These two systems have a leg up on systems from other bank competitors, which often prevent customers from dealing on a two-way price. On ABN's new electronic currency platform, for example, the direction of one's trading interest—whether to buy or sell—must be shown. Only then does a price come back. How anonymous a customer can be in its dealing also varies by bank. The age-old tendency for foreign exchange dealers to read a customer and shade a price in a given direction generally remains at many lesser institutions. CSFB's and UBS Warburg's efforts are clearly the future of foreign exchange dealing, but don't go visit them with unrealistic expectations. It's still a bit like learning to use the Internet circa 1995. — B.L.

Volbroker First a Yawn, Then a Take-off

Interbank currency option dealing platform Volbroker.com, a consortium effort owned by six major money-center banks, went live early last fall. Although more than 20 banking institutions in each of the three major time zones initially signed up, the platform didn't explode with activity. Lately, however, it has started to gain some popularity and trading volume. "There was a sense of mild disappointment for a while,” admits CEO Dirk Ward, "but then after three months, the platform doubled its volume. Now, another six weeks later, volume has doubled yet again.” Volume appears to be on the rise for two reasons. First, several banks have gained the ability to download their volatility surface parameters directly into Volbroker matrices. This makes for a user-friendly way to quote multiple options at the same time without having to manually put bids and offers in, only to then cancel or change them. Second, several banks have already gained the ability to download trades from Volbroker.com directly into their bank risk management systems. In this case, Volbroker hasn't quite broken all the way through the straight-through-processing barrier into the back office, but the system is quickly becoming a timesaving device for busy traders. In short, while broker GFInet still has its currency option plans in prototype, Volbroker is actually doing quite a bit of business. Ward plans to release a broker-assisted dealing module in March, as well a point-to-point option dealing feature. Point-to-point functionality will allow dealers to call out to multiple banks simultaneously and choose the best bid or offer instead of exposing a dealing interest to the entire market. Currently, people use expensive Reuters Dealing terminals to do this, but if Volbroker.com has its way, these terminals will soon go the way of the telex machine. Also coming at Volbroker by early May will be exotic options trading, and, according to Ward, "an announcement that we will be expanding into another asset class.” Which asset class that is remains a secret for now, but the theory seems to be, as long as Volbroker.com already has a consortium of banks working together, why not take advantage of that and try to expand its presence into more markets as soon as possible. — B.L.