Institutional Investor's Alpha Magazine - April 2008 - (Page 24)

efx Electronic Platforms Reshaping Foreign Exchange Trading Markets Leading money center and investment banks offer electronic FX trading through their prime brokerage services, which may include ﬁnancing, securities settlement/delivery and custody. Anonymity enables traders to deal on neutral prices, which reﬂect market conditions only – not a perception of the client’s direction based on trading strategies, tactics or current market positions. Electronic platforms also give traders more options in executing their normal buy-sell strategies. “Sometimes the players want to signal they’re involved, and other times they Leading money center and investment banks also offer electronic FX trading through their prime brokerage services, which may include ﬁnancing, securities settlement/ delivery and custody. “The combination of electronic trading and prime brokerage has changed the access to the FX market and allowed new entrants into the ﬁeld,” notes Andrew Coyne, head of FX Prime Finance in Citi’s London ofﬁce. Today, there are two main models for FX trading: anonymous marketplaces and traditional disclosed markets, where names are shown. “The anonymous market, combined with prime brokerage, effectively tightened the spreads and allowed client-to-client matching,” Coyne “Accessing the market efﬁciently – that’s where the electronic platforms come in. You get best execution with the electronic model, which is faster and less prone to errors. It’s a natural evolution.” Mark Robson FXMarketSpace Factors Taken Into Account When Supplying Electronic Pricing (Banks 2007) % of Respondents Undertaking Transaction Cost Analysis 70% 72% 64% 60% don’t, because the market might move against them, especially in the niche currencies,” says Robson. For example, a major New Zealand bank might not want to signal that it’s buying or selling “kiwi” dollars, because other traders will push the market against them. Of course, pricing is another issue. As Alexandre says, “Instead of having to call two or three banks and have one on each phone, now you can have the best price from as many as 200 counterparties without knowing who they are. And the more transparent the pricing, the much better chance you have to catch the price you want.” Desire for trading control, pricing, market access and fund strategies all play a role in selecting an eFX platform. Leading players in the market include EBS, CME Globex and Reuters. A number of ECNs serving banks and institutional investors also specialize in foreign exchange transactions, including Hotspot Fxi, FX Connect, FXall, Currenex and eSpeed. “There is no shortage of actors who want to be part of the game,” says Alexandre, who estimates there may be more than 1,000 platforms worldwide, including retail operations. 2 • Alpha Sponsored Report • April 2008 50% 40% 30% 20% 19% 10% 0% Settlement Risk Counterparty Risk Latency Source: Global FX Market Survey sponsored by CME Group, research undertaken by ClientKnowledge

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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