Smaller Firms Take eFX Trading Internal

The face of electronic foreign exchange (FX) trading is becoming more diverse as second- and third-tier banks are adding more liquidity to the global market than in past years, concluded panelists participating in the recent FX Week USA conference in Midtown Manhattan, which was hosted by sibling publication FX Week.

Most of the panelists agree that the abundance of new third-party trading technology has helped super-regional and smaller regional firms move away from the white-label relationships they had in the past with the tier-one money banks, according to David Poole, COO and principal at trading consultancy ClientKnowledge, who moderated the panel.

A recent poll published earlier this year shows that a lot of volume has moved from the tier-one banks to the tier-two and tier-three banks, adds panelist Mike Thrower, director, banking business development at Wall Street Systems. "They're tooling up their core platforms to trade FX," Thrower says.

Thrower estimates that super-regional banks are trading 30,000 transactions per day and the smaller regional banks execute approximately 300 transactions per day, which is dramatically below the trading volume of their tier-one competitors.

According to panelist Stephane Malrait, managing director, global head of ecommerce at Société Générale, this trend is partially fueled by a disruption in the trading platform refresh among the top banks. "Everyone has old technology that's been around since 2000 with the start of the technology trend," he explains. "The typical life span for these systems is eight years. Banks would have started to replace these systems in 2008, but the credit crisis hit and everyone delayed implementing new systems until today."