Reuters, CME launch global forex market platform

LONDON Sun Mar 25, 2007 7:44pm EDT

File photo shows traders calling out trades at the open of the S&P pit at the Chicago Mercantile Exchange on February 28, 2007. Reuters Group said on Monday it had launched its FXMarketSpace trading platform joint venture with the Chicago Mercantile Exchange as part of a drive to tap the fast-growing global currency market. REUTERS/John Gress

File photo shows traders calling out trades at the open of the S&P pit at the Chicago Mercantile Exchange on February 28, 2007. Reuters Group said on Monday it had launched its FXMarketSpace trading platform joint venture with the Chicago Mercantile Exchange as part of a drive to tap the fast-growing global currency market.

Credit: Reuters/John Gress

LONDON (Reuters) - Reuters Group RTR.L said on Monday it had launched its FXMarketSpace trading platform joint venture with the Chicago Mercantile Exchange CME.N as part of a drive to tap the fast-growing global currency market.

FXMarketSpace is a centrally cleared, global foreign exchange platform for the over-the-counter market that allows deals to be processed anonymously.

The venture, which aims for a slice of the $2 trillion a day foreign exchange market, has not been widely added into analysts' valuations on Reuters, although a growing number have recently begun estimating what impact the business will have.

Many analysts predict average daily foreign exchange turnover could hit $3 trillion by the end of this year, fueled by hedge funds, prime brokers and automated trading.

Broker ABM AMRO earlier this month said FXMarketSpace could add between nine and 92 pence to the share price of Reuters depending on the market share the two companies achieve.

Reuters and the CME have estimated that FXM needs around $40 million of revenue -- roughly two percentage points of market share -- to break even, and this is expected to occur in 2008.

Morgan Stanley analysts said in a note late last week that it valued Reuters' 50 percent stake in the venture at a base case of 31 pence per share and a bull case of 50 pence per share.

"The proposed venture has a highly scalable business model with a largely fixed cost base. The key is the extent to which FX MarketSpace will be able to attract volume," the broker said.

The two businesses created the platform in May, 2006, and said they would have it up and running by the end of this month.

Trading volumes in the global foreign exchange market have been growing at around 16 percent per annum over the past three years, underpinned by the growing interest from hedge funds, prime brokerage and automated trading of FX as an asset class.

FXMarketSpace, which starts with 76 customers either trading live or in the process of joining, allows trading in spot foreign exchange against the dollar on the euro, yen, sterling, Australian dollar, Swiss franc, Canadian dollar and four cross-currency pairs.

At the time of the full-year results on March 1, Reuters Chief Executive Tom Glocer said he believed the venture provided potentially strong growth for a relatively modest outlay.

"We own call option on 50 percent of the upside on an exchange model on the world's biggest asset class that is close to $3 trillion a day and heading to $4 trillion by 2010," Glocer said on the day of the company's full-year results.

Reuters and the CME plan to each invest $45 million split equally between 2006 and 2007.

Other major players in the electronic matching market include interbank platform EBS, which is owned by interbroker dealer ICAP and FX Connect, which is own by U.S. financial services firm State Street (STT.N).

Earlier this month, Bloomberg L.P. subsidiary Bloomberg Tradebook Services Llc launched an electronic foreign exchange platform called Bloomberg Tradebook FX using liquidity provided by AIG International Inc. (AIG.N).