State Street Corporation is due to announce this week that it has secured a coveted deal with the treasury software unit of Pennsylvania-based technology company SunGard.Under the terms of the deal, FXConnect, the Boston-based bank's multi-bank forex trading platform, will be embedded into the treasury workstations of SunGard's clients - bringing FXConnect a potential 1,400 corporate clients. The first trades could go through "within days", said Simon Wilson-Taylor, head of Global Link, the portal that hosts FXConnect.
The deal - likely to be announced today - is the first marriage of major pools of buy-side and sell-side liquidity in e-FX. "It's an exact match. It's perfect," said Wilson-Taylor. "These are the top-tier corporates that will get straight-through integration to FX Connect."
The move to link SunGard's corporate clients to a forex portal had been expected since the technology firm closed its own multi-bank effort, STN Treasury, in May. SunGard said the closure was due to a slow take-up of multi-bank forex, although industry analysts suspected the platform suffered from insufficient sell-side liquidity.
But few had expected State Street to win the deal. FXConnect has previously been seen as the portal for institutional investors, while rivals FXall and Currenex have enjoyed more success in winning corporate clients.
But, said Graham Taylor, executive manager of SunGard's eTreasury Exchange (eTX), the US company narrowed its choice down to FXConnect in the past two months, on the basis of transaction volumes. "It's far ahead of other portals," he claimed. He added that the ease of connecting the systems' technologies was also important. "It is very easy for us to integrate eTX into FXConnect. It's a similar technology," he said. The third major benefit is the possibility of linking clients into Global Link's e-trading network for other asset classes, said Taylor.
For State Street, the deal is the culmination of its efforts to crack the corporate market. It launched a corporate forex tool on FXConnect in October 2000 and took the platform onto the internet in January 2001 as smaller corporates were deemed less likely to use the hard-wired version. But what will have been key in making FXConnect a credible option for large corporates is the addition of Citigroup and JP Morgan Chase as price providers, following the collapse of their own platform Atriax in April.
The corporate market is vital to FXConnect's long-term success, said Wilson-Taylor. Although corporate clients account for a third of all client forex - compared with two-thirds from institutional investors - there are 50,000 "significant corporates" around the world compared with "maybe 1,000" investor clients, he said. "We are essentially weaker long-term if we don't have a convincing corporate option," said Wilson-Taylor. "We delayed making a major push into the corporate forex market until we had the right solution."
Wilson-Taylor spoke of the impact the deal would have on his rivals, FXall and Currenex: "It's going to make their lives harder, which is what my job is all about."
Although neither FXall nor Currenex would comment on the SunGard deal last week, a source close to one of those portals said: "Just because there's a client base connected to the system doesn't mean they're going to use it. It hasn't happened in the past."
Indeed, before SunGard's 1,400 corporate treasurer clients can use FXConnect from their desktops, they first have to migrate onto eTX - a process that started last month and will continue for the next two to three years, said Taylor of eTX.
Both FXall and Currenex have partner vendor programmes as well so they can link corporate treasurers to their platforms via cash management systems. FXall has links to 35 systems, for example.
Although none of the portals reveal full trading volumes, FXConnect said it regularly sees days with volumes above $10 billion. FXall said it recently hit its record volume day of $5 billion, which is calculated using only the buy-side leg of deals. Currenex does not reveal figures.
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