FX Connect and FXall Benefit From Atriax Liquidity Defections

As they get prepared to permanently wave goodbye to Atriax, Citibank, Deutsche Bank and JPMorgan Chase -- a trio of banks that provide liquidity to the soon-to-be-defunct multi-bank foreign exchange portal -- have wasted no time forming liquidity agreements with alternative FX portals. Most recently, in fact, JPMorgan Chase signed a deal to provide its FX prices to State Street Corp.'s FX Connect -- an Atriax competitor that now receives quotes from 31 different banks. But JPMorgan's pact with FX Connect is just the latest in a series of bank migrations away from Atriax, which, in early April, announced its intention to disappear from the FX landscape.

Interestingly, just days after Atriax unveiled its plan to shut its doors, Citibank, JPMorgan Chase and Deutsche Bank all agreed to provide their FX prices to FXall -- a rival multi-bank FX portal that had competed head on for buy-side clients since its launch last May. However, shortly thereafter, Citibank also agreed to become a liquidity provider for FX Connect, joining Deutsche Bank, which had contributed its quotes to FX Connect ever since State Street decided to open up the portal to prices from multiple banks in March 2000.

This week, JPMorgan completed the migration circle when it formed its pact with FX Connect. The trio of banks -- which are each owners in Atriax -- now provide their FX quotes to both FX Connect and FXall. What's more, rather than get caught up in whether they own a stake in the portals they provide quotes to, JPMorgan, Citibank and Deutsche Bank are now focusing on providing their institutional investor clients with access to as many portals and as many FX quotes as they need.

Simon Wilson-Taylor, managing director of State Street's Global Link -- an integrated portal that links traders to all of State Street's electronic trading systems -- says that Atriax's owners had to provide liquidity to multiple portals because that's what their customers want. "Today, the reality is that this whole thing is not about owning the marketplace. JP Morgan Chase, Citibank and Deutsche Bank realize that. They need to be where their customers are ... (and) many of their customers trade on FX Connect today," he says.

Wilson-Taylor also theorizes that Atriax did not form a merger with any of its rivals because such a deal would not have been as cost-efficient as simply shutting down the portal. "The trio of banks tried to get the best value for the shareholders in Atriax, disposing of the assets in the most efficient way possible. But as it turned, the most efficient way to possible was to close it," he says. "Otherwise, they would have to put in a load more money ...to make it more attractive for somebody to merge with them."

The pending death of Atriax, Wilson-Taylor says, should actually be a net positive for institutional investors trading foreign exchange instruments. With Atriax out of the picture, he notes, banks are taking a less "restrictive" approach about which portals they distribute their FX quotes to, freeing customers to base their decisions on which multi-bank portal to trade with on factors other than just liquidity. "It's quite clear that in the case of FX Connect and FXall, clients can get what they need in terms of liquidity. Now what they need to look at is what kind of service their getting from their online provider," says Wilson-Taylor.

Tim Sangston, an analyst covering foreign-exchange markets at the research and consulting firm Greenwich Associates, agrees that the closure of Atriax should have a positive impact on users of electronic FX trading systems. "In the past, a lot of (institutions) were not trading online, because they wanted to be able to access quotes from (all of) the major banks on one system, " he says. "But now, with many of the Atriax liquidity providers moving over to FXall and FX Connect ... customers will have more of a compelling reason to trade online."

Sangston explains that if an institution has "10 foreign-exchange -relationship banks," and five provided quotes to one FX portal and the other five provided prices to another portal, it would not make sense for that firm to trade electronically. But the departure of Atriax, he says, should push more institutions into the electronic FX trading realm.

The main factor that is going to differentiate the winning multi-bank portals from the also-rans, Sangston emphasizes, is straight-through processing -- the complete automation of the entire trading lifecycle. Whichever vendor can deliver a true STP environment to their customers, he says, will emerge victorious. "What STP's going to do is really lock customers into your system. If you get systems linked up in such a way, they'll become dependent on STP, because they'll be able to reduce back office head count... and it would cost a lot of money for them to switch to another system," Sangston theorizes.