To exchange or not to exchange?

However, whether the new venture can turn these expressions of interest into a viable business is less clear. Many major banks will want to put their name to anything that looks as though it might be a place to win market-share in what is a fiercely competitive business. But whether they actually back their words with deeds and put liquidity on the new platform will depend on the detail of how the platform is put together. It is this detail that will make or break the business.

Most importantly, banks need to know what the charging structure will be. This will determine how attractive it looks relative to what is out there at the moment. If the venture can undercut multibank portals and the existing Reuters Matching and EBS platforms, it stands a good chance of gaining a critical mass that will make it a long-term player.

A low cost base will therefore be essential, and it looks as though on this count MarketSpace should fit the bill. Although it is owned by two behemoths, it is to be a separately run entity with a small start-up staff. This should also enable it to be nimble enough to evolve fairly rapidly to meet the demands of this changing market.

The Reuters/CME backing will enable the venture to keep fees artificially low to begin with, which may also entice sceptical participants to stick their toes in the water. However, if it is to have a long-term future as a separate, profitable business it will need to get the economics right from the start.

Once the cheap introductory offers run out, ultra-cost-sensitive banks and hedge funds will want to see a service that is cost-effective and reliable.

Banks will also be wary of giving up direct prime brokerage relationships that enable them to control how their liquidity is distributed. They may be wary of giving up too much information to a central counterparty in which they have no stake. But if they can be persuaded that the new entity will be a cost-effective and safe place to trade, there is no reason why it should not succeed.