FX ECNs 2.0 getting gobbled up?
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23 July 2015Brad Bailey
It looks like a couple more of the second wave of institutional FX ECNs might become part of large exchanges. Last month unsubstantiated rumours circulated about 360T running a sale process-receiving bids from several parties, including Deutsche Boerse-and on Monday rumours circulated about Intercontinental Exchange (ICE) and FastMatch ECN. Generally, where there is smoke there is fire, but it is likely that in both situations, it is nothing more than market speculation, or wishful thinking. However, exchanges are the most likely strategic buyers; they are able to consummate deals in the current business and regulatory environment. Moreover, global exchanges need to scale across products, and they have ample currency to get large FX FinTech platform deals done. There are still other FX ECN platforms available. In recent years, the last of the first wave FX venues have been acquired. Earlier this year BATS picked up Hotspot, and in 2012 Thomson Reuters acquired FXall. Considerable discussion has taken place around valuations for these deals. The valuations reflect the allure of asset class expansion, the scarcity of major independent e-FX venues, and overall FinTech valuations. Furthermore, foreign exchange, like all flow products is at a major inflection point. The gathering forces of regulation, transparency, combined with the necessity of many FX players to further automate their pricing and trading makes this trend inexorable. And of course, scandal- $5.5 bln in fines already –a huge number. The foreign exchange scandal has been a major distortion in the FX world: creating an unusual opportunity to see change on a major scale. The scandal has been very expensive in terms of money and resources, but is producing a clear roadmap to a more open, transparent and automated FX market.