Interbank market is the one to watch

However, the fact the launch comes just as Icap has bought EBS highlights the fact that it will have a tough job gaining critical mass in what is a very competitive market. Should e-Speed also throw their hand in, as is rumoured, there will be even more players looking to take their slice of a finite, although admittedly sizeable, cake.

In a sense, the banks should be hoping that both these ventures succeed. More competition should keep prices down and drive innovation. However, the history of the forex industry shows that there is a limit to the amount of competition the banks seem to want to support.

The banks' decision to launch EBS back in 1993 was made in order to break up Reuters' monopoly, and it succeeded in doing this. The banks had what they wanted, and the third player in the space, Minex, was not able to build the momentum needed to be a substantial competitor to the big two, becoming incorporated into EBS in March 1996.

After this, the market settled into the situation that we see now, with EBS dominating the major pairs and Reuters having a stranglehold on the commonwealth currencies and cable. This state of equilibrium that sees the banks served by a sturdy duopoly is mirrored in the fixed-income market. Here, e-Speed and BrokerTec have cornered the interdealer market, with each dominating different parts of the market.

Lava and any other entrants will have to convince traders that they should take yet another screen onto their crowded desks. Alternatively, they will have to offer such an effective and comprehensive offering that they feel confident in jettisoning a tool with which they are familiar.

This is not to say that new entrants are doomed, but they will need to deliver something that banks cannot find elsewhere, which is likely to be a tall order. It will be an interesting battle to watch.

The fact that EBS's origins are as a Citi spin-off will give Lava some comfort. Electronic Broking Services started life as Citi Corp Dealing Resources (CDR) in 1986. It was only in the mid-1990s that EBS bought CDR's technology. Who knows where we will be 20 years from now?