Chase, Citibank, Deutsche to Form ForeX Trading Alliance with Reuters

NEW YORK--The revelation by The Wall Street Journal last week that three of the foreign exchange markets' top banks--Chase, Citibank and Deutsche--are to form an Internet FX trading alliance with Reuters has prompted a flood of speculation over the timing and structure of such a consortium.

Despite press reports in the Financial Times and elsewhere claiming that the four participants have openly owned up to the alliance, all four refuse to admit that such a venture exists or is even planned and will not comment on any conjecture.

However, FX Week, a sibling publication of Inside Market Data, can confirm that the overall details circulating the market are broadly accurate. These are that the alliance, tentatively called Atriax, expects to offer a basic transactional capability by the first quarter of next year and a fully operating system by the third quarter of 2001.

Atriax is set to compete head to head with rival bank-owned consortium Fxall, which includes Bank of America, Credit Suisse First Boston and Goldman Sachs. Fxall was announced in June. Both groupings aim to offer a secure Internet site where corporate and institutional clients can ask for quotes for foreign exchange using a reverse auction process (i.e., where the cheapest bidder wins). The prices between the competing banks will only be seen by the end client and not by the rival banks.

The system will be set up so that all transactions will go through immediately to the banks' back office.

The Atriax alliance, which presently accounts for around 30 percent of the foreign exchange market share, plans to involve around 50 banks in the venture. Fxall has also said early on that it seeks around 20 to 40 participating banks.

It is unclear whether both alliances intend to be exclusive and discriminate against members of the other consortium, but analysts say such a move would be difficult and counterproductive.

"If my customer is on both systems, then as a bank I have to be on both systems," says David Gilmore, a partner at Connecticut-based consultancy FX Analytics.

One of the key issues that will determine the success of either consortium is the technology that will drive the system. Fxall advertised for partners to develop the trading technology on its website when the project was announced in June. This led critics to doubt that the advertised year-end 2000 launch date is possible.

Reuters' participation in the Atriax alliance should help Citibank, Chase and Deutsche avoid similar accusations. "Reuters brings with it an existing real-time trading system. Probably more importantly, it has the market data and content. Ultimately these portals will be a one-stop shop for FX trading, so that's a significant advantage," says Gilmore.

The launch of Atriax also raises questions over the future of the independent FX trading systems on the Internet, like Cfoweb.com and Currenex. At the moment these and some banks' proprietary systems that display banks' prices are the only sites offering multi-bank trading on the Internet. The proprietary models include State Street's Global Link network and Bank of New York's iFX Manager.

Meanwhile, although the leak about the Atriax details came through a US newspaper, the hunt for Deep Throat has centered on London, particularly on Reuters, where the corporate culture is more open than the big trading banks. In an effort to clamp down on leaks, Deutsche Bank has apparently circulated memos to all the relevant staff detailing the consequences of breaking the bank's confidentiality agreements.

"But all this secrecy is ridiculous and probably going to be counterproductive in the long run," says a London banker. "If we are going to be invited into Atriax later on, what's so wrong with letting us know a bit about it early on? Otherwise we'll probably go and sign up with Fxall just so that we're ready for business."