Wallstreet will launch a new FX trade processing utility, the Electronic Settlement Network (ESN), in conjunction with ICAP, Currenex and Logicscope. With around 50% of the cost of a trade today being in settlement, this model will help provide a model for banks to drive down volumes of FX trades, giving them the opportunity to compete with the largest institutions.
While the industry’s largest banks can rely on volume of trade to drive the cost per trade down, smaller banks and their clients are struggling to compete. Recent research revealed that most banks currently incur costs of up to US $25 per trade for trade processing, but this could be reduced to just US $1 through efficiencies and economies of scale. Consequently, a bank trading 300,000 FX trades per year could achieve annual savings in the region of US $4.2 million.
In light of the worsening credit crisis and reduced margins, few banks have deep enough pockets for investment in technology. As a result, FX and OTC derivatives volumes are aggregating across the largest players. ESN will enable a greater number of banks to automate and outsource FX and OTC derivatives settlement, reducing back office burden and settlement risk.
D.C.