Celent estimates that the foreign exchange market could grow from close to US$3 trillion to US$4 trillion of daily turnover by 2009–2010, with 75% of the interdealer spot market volume and 50% of the dealer-to-client volume traded electronically.

Axel Pierron, Celent analyst and author of the report, says the rise of new market partic­ipants on the buy side and their ability to improve and generate liquidity is blowing the wind of change in FX markets.

"The segregation of the market between interdealer and dealer-to-client is already being attacked, with the two major interdealer platforms breaching the wall to attract these profitable new cus­tomers," he says. "The question to ask is not whether the FX market will adopt an exchange model, but when."

The development of interdealer electronic platforms has driven the smallest banks out of the market because it has generated visibility on the market and less volatility, narrowing the margins, he points out.

Pierron adds: "The acquisition of Currenex by State Street could signal a wave of consolidation in FX e-trading platforms, but I doubt it. This acquisition is a specific answer to State Street/FX Connect issues, such as outdated technology and expansion into new customer segments."

In fact, he says, there are many projects to develop new electronic trading platforms such as Lava's plan to launch an interdealer FX system and FXAll's new dealer-to-client platform.

"The market is large, with various customer segments and numerous single dealer platforms, so market participants will hold the consolidation mantra for a while," suggests Pierron. "As Icap’s acquisition of EBS and Knight Capital’s acquisition of HotSpotFX demonstrate, if consolidation happens it will be complementary, to provide multiasset trading facilities."