VideoOnly a year ago - but a virtual millennium in Internet time - foreign exchange trading on the web seemed just around the corner for Asian corporate treasurers. All the big regional banks announced plans to offer an Internet forex (IFX) service that supplemented their proprietary systems.
Their heads of treasury services took to the stump, touting the benefits of on-line forex, and loudly. In a characteristic strain, David Worth, Standard Chartered's group head of global products, treasury, said in the winter of 2000: "We anticipate 25 to 30 percent of deals will be dealt on-line by year-end."
To be fair, Worth was speaking at a time of unprecedented enthusiasm for everything Internet. Back then, bankers and corporate treasurers took for granted that the Internet was going to bring order to the chaos of currency trading. Within months, it would create a unified, deeply liquid exchange for global currencies where dealers could always find a market and the best possible price.
Missing the Beat
Today, that promise remains, well, still a promise. CFOWeb.com, which set up in September 1999 as one of the first Internet forex services, has "discontinued public access". At the moment, one estimate puts corporate IFX volume in Asia at only 2 percent.
Peter Wong, convener of the Hong Kong Association of Corporate Treasurers, gives the best reason for the slow take-up. "Most of the people I talk to are not comfortable going to the Internet to do a major deal. They would rather go to a dealer and ask if this is a good time to trade, to get the pulse of the market," he says.
Indeed. In an informal CFO Asia poll of ten regional corporate treasurers at major companies in Asia, we found that none of them use on-line forex services and only three plan to do so in the future. Justin Chen, treasury manager of the Taiwan-based Ford Lio Ho Motor Company, and one of those polled, explains: "I don't know what will happen in the future, but in the next couple of years I don't think it will be the operating standard for corporates."
Vendors, for their part, are not shy about facing up to these facts. Confesses David Jones, managing director of Cognotec Asia Pacific, an Internet forex technology provider: "The reality is that in Asia today, including Japan, a very, very small percentage is done on the Internet. The most advanced market is Australia. Japan is starting to go now. Places like Singapore and Hong Kong are only starting to get off the ground."
What happened? The more conspiratorially minded have suggested that it has never been in banks' interest to cross the Internet, with all its transparency and comparative pricing power, with foreign exchange. The poorer the information available to treasurers, the greater the banks' spread, and the greater the trading profit. Why would banks want to introduce more pricing information to their clients via a web-based service?
The conspiracy theory, however, doesn't really hold water. If a bank doesn't offer more information to its customers, its competitors will, claiming a growing portion of the roughly US$3 trillion daily foreign exchange volume. Following that line of thinking, two significant multi-bank portals, FXall and Atriax, have recently emerged.
FXall, which boasts forex heavyweights Bank of America, Credit Suisse First Boston, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley Dean Witter and UBS Warburg as its core partners, was launched in May. Atriax, which is led by Chase Manhattan Bank, Citibank and Deutsche Bank, comes armed with Reuters-fed market data and news. Atriax says its participating banks account for two-thirds of total forex volume handled by the top 100 banks, and that dealing service began in June.
Jostling the mega, multi-portals are a number of smaller Internet services, such as MatchbookFX, Gain Capital, FXCM, Currenex, forexinvesting.com, and many individual bank offerings, such as the on-line forex provided by HSBC, Standard Chartered and Lehman Brothers.
Most electronic foreign exchange - about 50 to 80 percent, according to statistics from the Bank for International Settlements - resides with private network systems such as Reuters, Bloomberg, the interbank trading platform EBS (electronic broking service), and proprietary networks such as HSBC's Hexagon.
Private Ports
With all that activity, why have corporate treasurers been reluctant to take up Internet foreign exchange? The lack of straight-through processing (STP) is one issue. Straight-through processing means fully automated and fully electronic transactions from trade to settlement. It's quick, cheap and accurate and leaves little room for human input error.
The larger on-line forex services - including FXall and Atriax - offer an STP solution, but the challenge has been to match up the back-office systems of corporations and financial institutions. Simply put, it is difficult, expensive and time-consuming to integrate each of these with the banks' on-line forex systems. If an on-line order needs some degree of manual input, treasurers might wonder if there would be a huge advantage to executing over the Internet, compared to the tried, true and hugely comfortable method of trading over the phone.
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