I remember reading ITAnalysis about research that the needs of customers for advanced trading functionality will mean high costs for banks over the next few years. Significantly, the sell side's technology spends of around US$400m annually on e-commerce components will nearly double by 2010. In addition, while the proportion of client volumes traded electronically is currently approximately 50 per cent, this is set to increase to around 75 per cent by 2010 when the FX market is expected to see volumes of US$3 trillion a day traded. And Buy-side increasingly requires the ability to deal with one click on guaranteed prices wherever they wish to trade from multiple location from their bank's proprietary FX trading desk or via a multi-bank portals. At the same time as a result of moves towards streaming pricing and clients' requirements to be able to trade from multiple locations, it is questioned whether the foreign exchange market has evolved to the extent that many banks’ pricing engines are no longer adequate for them to remain competitive.
Upgrading and adapting pricing engines to meet the demands of the marketplace is apparently a priority for many financial institutions. consortium approach to investment and development of e trading platforms (may be not for FX) is more in future.
The functional, integration and technology risks of using 3rd party trading technology providers appear to be higher than in other Markets partly because of the perceived added value IP of successful, market connectivity and partly because choice of provider is limited. Lack of major 3rd party competitors has probably reduced the competitive innovation pressures. It is vital that the larger banks continue to capture substantial amounts of transaction flow from increased volumes if they are to fund their proprietary platform developments. Conversely the medium sized and smaller banks maintain heir business through relationship building and servicing the customers. They will continue to adopt a collaborative approach towards investment and development of trading platforms.