New platforms: ready, steady, go

It should be an interesting few months in which we will see how successful the platforms are in attracting liquidity, particularly away from existing venues. While each new system does offer something different to incumbent platforms, it has never appeared an easy task to convince participants to get on board.

In particular, it is the search for market makers that will provide prices during choppier market conditions as well as liquid market environments. It's not hard to see this being more of a challenge on an anonymous platform where no-one's reputation, supposedly, is at risk if prices aren't being provided, or even pulled.

Over the past couple of years, the buy-side has been increasingly active in making markets on FX portals. In fact, according to one bank source, most of the market makers on FXMarketSpace will likely be hedge funds and proprietary trading shops.

He said this is for two reasons. Firstly, yes they have been more active in making markets, and he does not doubt that they will provide decent liquidity during normal market conditions. Indeed, the reliability of a market maker has been the central argument used by banks when discussing the evolving role of the buy-side. But also because there is hesitation by banks to make markets on anonymous venues as a consequence of the spoofing that took place on existing platforms.

Jake Smith, head of marketing at FXMarketSpace in London, said part of the reason behind launching an anonymous environment is to make the markets more efficient. "But at the same time, we recognise that we have an obligation to maintain an orderly market," he said. "Our transactions are going through CME's Globex, and part of that has a unit which investigates suspicious-looking trades."

He added that the platform has received interest from a mix of traditional buy-side and traditional sell-side. Interest has come from traditional market makers, prop desks and the prime brokerage units at the traditional sell-side, and from the traditional buy-side. "We are treating them all the same, they are all customers," he said.

But whether one group eventually dominates on the platform as a market maker over the other will be interesting to see.