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November 1, 2012

Same Movie, Different Market

Tech Exec Moves from Stocks to Forex

By Tom Steinhert-Threlkeld

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Steve Rubinow thinks he's watching a replay.

The former chief information officer for NYSE Euronext is now CIO at FXall, the supplier of an electronic platform for trading currencies.

When Rubinow got to the NYSE, "fragmentation" of stock markets was just beginning. Trading was dominated by the New York Stock Exchange and the Nasdaq Stock Market. His outfit, Archipelago, was an upstart "electronic communication network." Now, there are 13 national exchanges, more than 40 dark pools and alternative trading venues, plus a couple hundred internal pools of capital operating at brokers.

In foreign exchange, trading has been dominated by five banks: Deutsche Bank, Citigroup, Barclays, UBS and HSBC, according to research firm Celent.

But now, technology is able to bring together a wide range of dealers onto a given platform. The dominant player has been FXall, recently acquired by Thomson Reuters for $625 million. It provides service to more than 1,000 institutional clients. A rival, FX Connect, gives access to liquidity from more than 55 providers.

"It's like equities was once upon a time and we're replaying the movie,'' Rubinow told Traders Magazine. "And how many times in your life do you have a situation you can go into saying, 'I've seen this movie before and I know how to produce the movie better the second time around because I'm so much smarter'?"

Rubinow, who lives in Chicago and commutes to New York, left the business of applying technology to the trading of stocks in April.

Shortly thereafter, he said, "I basically got tired" at NYSE Euronext, after having helped it through the creation of a world-spanning Secure Financial Transaction Infrastructure and the building of two $250 million-a-copy data centers in Mahwah, N.J., and Basildon, England.

The FX business may be tonic. Roughly $36 billion a day worth of stocks was traded on the New York Stock Exchange in April and $59 billion on the Nasdaq Stock Market.

By comparison, roughly $4.3 trillion worth of currencies are getting traded every day this year, according to Celent. And it's a "highly fragmented and lightly regulated industry," Rubinow contended.

Which puts the market "kinda sorta where the equities markets were a decade ago," he said.

Here's how he expects the next decade to play out:

* Consolidation. Last year, everyone from Deutsche Börse to NYSE Euronext to Nasdaq to the London Stock Exchange wanted to merge. "We've seen consolidation happen in equities and so we know what consolidation looks like. I suspect that that will happen in FX as well."

* Regulation. There are no central market and no global regulatory agency responsible for monitoring the activity of the currency markets. But oversight is increasing, country by country. Expect that to continue.

* Automation. Just as in equities, "servers will be talking to servers, as opposed to people at workstations chatting with each other."

Watching a market go from one where human beings are in the middle to servers in the middle to one driven by algorithms the humans wrote is the movie Rubinow expects to see play out again in foreign exchange.

Which makes FXall an interesting outpost for a technologist. "I think there's lots of opportunity for making this market more interesting and more efficient for all the participants," he said.