Banks plan an elite currency deal platform

BIG banks frustrated by the opening of foreign exchange markets to greater competition plan to launch a rival, bank-only currency dealing system, City A.M. learned yesterday.

The move aims to restore their level of influence in currency markets, which has declined since the Icap-owned EBS trading platform was opened to non-bank institutions such as high-frequency traders in 2005.

The project is at the planning stages and involves most of the biggest ten banks in the global foreign exchange business, reports said yesterday, which could include names such as Barclays Capital, HSBC, RBS and Citigroup.

Several banks refused to comment but a source close to the talks yesterday confirmed to CityA.M. the report was true and had “leaked out far earlier than it should have done”. “This has caught everybody on the hop,” one source said.

Another said the plan, dubbed Pure FX, was “very likely” to go ahead.

The global market for global currencies and their derivatives is the largest and most liquid in the world, with a daily spot volume of about $1.5 trillion (£950bn) among the ten largest banks alone.

But institutions have seen their formerly privileged position on currency trades come under pressure as electronic platforms have made prices more transparent and immediately available. The biggest banks have lost market share to rivals such as high-frequency traders using powerful technology that buys and sells at far greater speed to gain the best prices.

Boston-based consultancy Aite calculated that high-frequency forex traders accounted for 25 per cent of trade volumes at the end of 2009 and estimated they could handle 40 per cent of trades by 2012.

By launching their own dealing system, the banks aim to bypass these traders and create a level playing field for them to trade with each other.

The banks are at the stage of approaching technology providers to build the platform, possibly proposing that Icap modifies EBS.

None of the banks are planning to leave EBS at present.