The Chicago Mercantile Exchange (CME) and Reuters teamed up to create a platform where over-the-counter foreign currency transactions (i.e., spot, or cash, forex) could trade on an exchange-like environment.

The result is FXMarketSpace, which began operations in late March with more than 80 customers.

“We’re ahead of expectations in terms of customer numbers,” says Jake Smith, marketing chief for FXMarketSpace. “We’re trying to get a good mix — large banks and trading desks, but also new entrants.”

Smith says the endeavor needed the support of large banks because they represent such a major part of the existing cash forex market, but FXMarketSpace also recruited small banks, hedge funds, prop traders, and traders who had previously only traded exchange-listed currency futures.

“A lot of traders interested in forex stayed away from the cash market because it was too opaque,” Smith says. “But we’re offering one price.”

According to Smith, when the spot forex market was dominated by banks, a trader could call five different banks and get five different prices, with bigger customers generally getting more favorable rates. In the FXMarketSpace model, everybody gets the same price, even if one firm does 1,000 times the business of another.

Also, all trades will be centrally cleared through the CME.

“That’s the exchange way of doing business,” Smith says. “But it’s different to cash traders.”

FXMarketSpace offers trading in six currencies — euro, Japanese yen, British pound, Australian dollar, Swiss franc, and Canadian dollar — against the U.S. dollar, and four cross-currency pairs. Smith says those six currencies account for almost 80 percent of the $3 trillion-a-day spot market, but FXMarketSpace is always monitoring the volumes of other currencies to see if they are worth adding to the platform.

While Smith says he has been pleased with how FXMarketSpace has performed so far, the platform has not yet released volume numbers. However, while few if any cash-market participants release their volume totals, except in a self-congratulatory way, FXMarketSpace will begin making its volume totals accessible to the public.

“Beginning in May, we will start to disclose our volume,” Smith says. “We want to highlight the benefit of an exchange-type environment as opposed to a cash market, and one of those benefits is transparency.”

Smith did say that FXMarketSpace has had days where the total value of its trades has reached $1 billion.

“That won’t rock the cash market, but we were happy with it considering how early in the game it is,” he says.

Smith says the immediate goal for FXMarketSpace is to attract new customers, something the group will focus on heavily in the first year.

“It was important we signed up some prime brokers and some clearing firms, because you can’t trade without them,” Smith said. “It was also important that any of them went live on our first day, because their customers could come on more quickly.”

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