New research from Greenwich Associates suggests that growth in electronic foreign exchange trading could accelerate sharply if the consortium of banks supporting the EBS Prime interbank trading system can hold together and further extend the service to the buy-side.
The US-based analyst group says current growth rates of more than 100% year-on-year in e-FX dealing will appear modest if EBS Prime succeeds in overcoming cost/benefit prejudices and entices more buy-side users to trade electronically.
EBS says the Prime service currently provides liquidity to 100 customers from the professional trading community and smaller banks, and accounts for about 10% of daily volume. But the interbank platform has recently been knocked by the decision of Deutsche Bank to opt out of the system.
Nonetheless, Greenwich consultant Tim Sangston believes that EBS Prime has the potential to take further business away from niche market providers and develop new markets.
"If the inter-bank system is able to execute its expansion plans, its extension into the customer side of the business will have profound implications for [alternative] service providers, and indeed for FX as a whole," he argues.
This latest Greenwich research reveals that electronic foreign exchange is growing at a pace far exceeding that of global FX trading as a whole, with electronic volume more than doubling from $7 trillion in 2003 to almost $16 trillion in 2004 among foreign exchange customers surveyed in late 2004. In particular, sharp increases in bank e-trading volumes helped drive the growth: Globally, increased eFX volume on the part of banks accounted for more than $6 trillion of the total increase.