Anonymity does not always equal profitability

However, it runs counter to the established business models of those that are now looking to enter this market. FXall stressed its credentials as the banks’ friend, a place where they could know who they were dealing with and access steady relationship-based FX trade. This model has worked well and seen the platform grow year after year, despite the introduction of charges to buy-side customers.

This type of flow is a world away from the aggressive, anonymous, and high-speed trading environment in which many hedge funds operate. This is where much of what is sometimes called ‘toxic’ flow emanates from, which sees bank prices being arbitraged by programmes that the liquidity providers are unable to keep up with.

However, in a market where platforms pride themselves on constant growth in volumes, the temptation to try to break into this market has proved too much. Whether this deters banks from dealing with these venues has yet to be seen, but they will think twice.

Platforms also need to think about banks beginning to suffer from ‘new-offering fatigue’. With Lava’s interbank portal set to be unveiled shortly, Icap looking to leverage its EBS purchase, the Reuters/CME MarketSpace initiative and doubtless others in the pipeline, there is a real danger that banks will simply not have the time or budget to integrate with all the new initiatives.

They will need to prioritise what they think are the most likely to deliver decent margin, and which will succeed. While banks are keen to tap the seemingly bottomless pit of hedge fund money, they may be reluctant to spend it on attracting limited profitability flow.

Time will tell whether the new ventures thrive. Hotspot has shown there is a decent living to be made from being a genuinely neutral and anonymous market-place. However, the appetite from banks for much more of this potentially damaging business is at best uncertain.