ECNs are far from over?

The market for electronic trading platforms couldn't be more interesting, with rumours re-emerging that LavaFX is up for sale.

It is believed that an open auction is being held for the Citi-owned platform, with a shortlist of seven bidders in the frame. Drew Niv, chief executive at New York-based retail trading platform FXCM, confirmed that it is one of the companies in the running. Others thought to be looking at the platform include FXall, although the company declined to comment.

The fact that there should be interest to purchase the platform is indicative of the bullishness of the FX market. It also illustrates that the ECN model still has some form of a role in foreign exchange despite suffering relatively pronounced volume declines compared with others, in recent months. Indeed, the old debate over relationship-based versus anonymous trading also found an opportunity to rear its head.

There is obviously a lot to the idea that dealers want to pick their relationships and make them as strong as possible, but that is different to saying that there is no place for ECNs.

This also echoes the re-emergence of a similarly long-running broader debate of whether forex will be traded entirely on exchange or over-the-counter. Ultimately, FX is a large and diverse market that no one solution is necessarily going to fit all. More likely, both OTC and exchange models will survive alongside something in the middle, as indicated by the number of initiatives circulating the market. So far, dealers say there are no front-runners, with each approaching development from different angles.

One aspect is with respect to CLS settlement and the challenges of dealing with high ticket count retail business. While CLS is unlikely to disappear, alternative solutions are being put forward, with some dealers saying they see the potential for them to gain traction in specific niches. As one head of EFX said: "You see this with banks as well, where you focus on your core business and solve for that, then you see what else you can solve around you. But you never solve outside and then come back for the core, because you will never give up that natural franchise, and so the same thing applies."

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