Another U.S. exchange operator is set to launch a foreign exchange marketplace and expand its trading footprint.
As first reported on Reuters, Nasdaq is poised to enter the $5 trillion dollar per day fx market. Nasdaq’s system is already built and ready for testing, according to co-president Hans-Ole Jochumsen.
Nasdaq would be joining BATS Global Markets in the operation of a foreign exchange marketplace. In March, BATS Global Markets, closed its acquisition of FX trading platform Hotspot from KCG Holdings (KCG.N) for $365 million.
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Nasdaq’s Jochumsen, told Reuters the FX trading platform is ready to be tested with banks although a launch was more likely in 2016. He did not elaborate on the exact opening date.
The goal of Nasdaq is simple – diversify its earnings stream away from equities and data provision. Unlike BATS which purchased its fx platform, Nasdaq opted to build, thus making the venues success much more critical for the bourse at time when equity commission spend is static and usage of alternate trading venues such as dark pools continues to be among the buyside’s favored places to trade.
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“There are two main problems in retail FX markets. How can customers be sure they receive the correct price and secondly the counterparty risk,” said Jochumsen. “The criticism of banks and the fines show the market is not transparent and compliant and it speaks for it to be organized more like a stock market.”
Most stock exchanges have been looking for alternate income streams and have looked to the virtually untapped fx marketplace as a means of bolstering flat bottom lines. Also, overseas regulatory pressure have been shifting currency trading onto the public exchanges and away from internal bank trading desks via voice brokering.
“We have a system ready that banks can test in their own systems but we don’t want to launch it before we have enough banks committed to secure sufficient liquidity,” he said.
He did not see why most currency pairs such as EUR/USD, GBP/USD and USD/CHF could not trade on a system similar to the stock market where banks add bid and ask prices every day.
Aside from BATS, Nasdaq will also be competing against EBS, owned by ICAP PLC, and FXall, owned by Thomson Reuters.
Citigroup is the leading foreign exchange trading bank with a market share of 16.1 percent, according to the Euromoney FX Survey 2015.
