Finding that fund managers really want a multi-dealer site for foreign exchange trading rather than individual sites from each dealer, Bank of New York has decided to roll out iFX Manager, its own in-house forex order management and trading system, into a separate company called Market Marque.
BONY and its development partner, AVT Technologies, have created Market Marque with the intention of signing up more dealers, affording users a single portal for trading foreign exchange. No banks have signed on yet, says Richard Estes, global product manager for iFX Manager, but Market Marque is in active discussions with a number of them.
"What we realized was, ideally, fund managers want a single means of accessing many foreign exchange providers," Estes says. "In order to facilitate connecting multiple bank counterparties on a single platform, we needed to take what was originally a Bank of New York system and operate it in an independent fashion through a separate company."
Estes admits that other dealers were reticent to throw their deal flow onto a system maintained and managed by a competitor. Even if BONY assured other banks that the data center would remain secure and separate from its own trading system, dealers relented. "One of the things we found is that there is always an issue with the servers and data center operations residing within one of the dealing banks," Estes explains. "Other dealers don't like that."
In an effort to make Market Marque a true independent entity, answering to the needs of its liquidity providers, banks that sign on will take an equity stake in the company.
This move by BONY points to how quickly competition has grown in the online foreign exchange market. Since the launch of iFX Manager last year, the industry has seen the emergence of such competitors as State Street's FXConnect, Currenex, FXall and CFOWeb.
Estes brushes aside concerns about FXall, citing that this is a consortium with an idea and no system. "FXall has announced creating some type of multibank portal to offer different foreign exchange products and services, but it hasn't defined what the functionality of that consortium will be," he says. "They have announced the intent to do something, but they don't have any technology."
FXConnect, like iFX Manager, was designed as a proprietary system, but State Street has made attempts to open the system up to other dealers. Estes believes that State Street is finding it difficult to sign up other banks, because it is still managed and operated by State Street.
Speaking to the functionality that separates iFX Manager from the likes of Currenex and CFOWeb, Estes points out that those systems offer a pure auction-style competitive-pricing model that he believes is more appropriate for the corporate end user with low-ticket volume. "Those types of end users are dealing mostly on price," he adds.
IFX Manager, on the other hand, was designed for fund managers who have high-ticket volumes and are more interested in straight-through processing features. Since fund managers trade foreign exchange primarily as a byproduct of an underlying securities investment, iFX Manager provides an API to the firm's portfolio management system that will automatically upload position data into iFX Manager. "A client who knows that he has to do 100 transactions a day can connect his portfolio management system to iFX Manager's API and upload data on an as-needed basis," he explains. "Clients simply don't have the time to type in every transaction."
Estes further distinguishes iFX Manager from competing systems by describing it as a true order-management system, rather than just an execution engine. "There's a lot of pre-trade work that has to be done to figure out positions, trades, counterparty selection and settlement dates," he says. "The execution part only takes a couple of minutes."
Interestingly, as an order management system, fund managers can use iFX to manage trades with dealers that are not on the Market Marque network.