TECHNOLOGY -- Cognotec stays top despite rivals’ merger

Reuters and AVT -- who last year claimed second and third place respectively -- merged in December 2002, when the UK technology giant bought the niche FX firm. The combination has narrowed the gap trailing Cognotec, but not enough to knock it off the top spot.

Brian Maccaba, chief executive of Cognotec in Dublin, said that the dealing technology industry is undergoing a new phase. Volumes in e-trading are up -- 128% year-on-year for aggregated flow of all Cognotec-using banks. Number of tickets and, perhaps more crucially, size of ticket, are also going up, as clients become more comfortable trading large amounts electronically.

While average ticket size may not increase as quickly as might be expected because of the quantity of the smallest trades going through the systems, the median ticket size has gone up three or fourfold in the past three years, he said. Average top-end corporate ticket size is now about $3 million -- the same size as an average interbank ticket on spot broker EBS, said Maccaba.

This puts more pressure on banks’ systems to be faster and more accurate on pricing -- which is where Cognotec is focusing all its attentions, said Maccaba. "At the moment, we’re reinvesting all our profits on developing [pricing mechanism] Market Rate Manager and enhancing the granularity of client-specific pricing algorithms."

The latest trend in e-commerce, white-labelling, whereby banks give their technology platforms to client banks - usually for free in return for FX flow -- has had some impact on the traditional vendors, conceded Maccaba. But he believes it is unlikely to be a major challenge in the future. "You do not want to be dependent on one provider for technology and liquidity. Banking is all about risk management and you do not want to put all your eggs in one basket," said Maccaba.

He also believes the two models will prove attractive to different client bases. Cognotec’s focus is firmly on top 100 banks -- for whom complete outsourcing of FX is not an option. "They would lose all credibility with their clients," he said. But banks’ white-label solutions are aimed at clients such as lower-tier banks, broker-dealers, commodity trading advisors and funds. For these clients, separating technology and liquidity is clearly not an issue. Saxo Bank, a Danish niche provider that offers white-label trading platforms free in return for client flow, debuted in FX Week’s survey this year at number three. "If you can get the platform for free, why pay for it?" said Lars Christensen, chief executive at Saxo in Copenhagen.