With around $1.5 trillion swap-ping hands every day, the foreign exchange market is a natural to enter the online exchange arena. However, while banks are racing to form Internet currency trading venturesmost notably FX Alliance LLC, owned by 13 major international banks; and Atriax, owned by Citigroup Inc., Chase Manhattan Corp., and Deutsche Bank AGnone of the services is yet fully operational, leaving corporate users with few alternatives.

However, two third-party services aimed at fulfilling corporate users’ yen to trade online recently began offering spots, swaps, and forwards over the Internet. Both Currenex Inc., with 25 banks and 12 corporate clients, and CFOWeb .com, with 10 banks and 4,400 users as of early September, use a reverse auction method, by which registered corporate users choose the banks they want quotes from and enter a bid. While the banks know the trader’s identity, they get no information about their competitors or other bids. Within a minute, banks’ quotes will appear on the trader’s screen, with a few-second window for the trader to accept or reject them.

Although only about 12 percent of foreign exchange trading is now electronic, the volume could grow to 75 percent by 2002, estimates Robert Iati, senior analyst at Boston-based TowerGroup. One factor that has slowed growth so far, he says, is that CFOs often are afraid that broadcasting quotes to a number of banks might reveal their trading strategies and allow banks to raise rates accordingly.

Early adapters say the system has few drawbacks. Stephen Piccininni, vice president of treasury for MasterCard International, says the company has been trading the majority of its foreign currency through Currenex’s pre-Internet, modem-based system since it opened in 1996, and has yet to run into a problem. In fact, the company now deals only with banks that agree to join the system. “It’s not just getting the best price; there’s an operational efficiency,” Piccininni says, compared with having a single bank provider or deploying a large team of people to get telephone bids from multiple banks.

Currenex CEO Lori Mirek says the service is a good proving ground for how well a bank treats its corporate clients. “We don’t get in the way of your relationship with your bank,” she says, noting that many banks have seen the exchange as a way to net new customers for offline services. “If the bank has been taking good care of the customer, then it isn’t an issue.”