Pan-European flash; Ditmore takes a shot at Bank One; All for FX
By Conrad de Aenlle, Jacqueline S. Gold and Jane Adams
September 2001
Institutional Investor Magazine
Pan-European flash
The launch of the virt-x electronic exchange was more spectacular than even its backers could have hoped. On June 26, its second day of operation, the London-based marketplace came close to capturing 10 percent of the trading volume in European blue chips, a target it hadn’t expected to hit for a year.
All at once, the upstart seemed a credible threat to the dominant exchanges of Europe - proof, finally, of the power of online markets. Its apparent success was all the more remarkable considering the disappointing start last year of another e-marketplace, the OM Group-Morgan Stanley joint venture Jiway.
But virt-x, jointly created by SWX Swiss Exchange and London-based Tradepoint Financial Networks, didn’t build on its early numbers. Through August 17 virt-x had averaged £1.3 billion ($1.9 billion) in daily transaction value, well below that second-day peak of £2.47 billion.
Virt-x says it has not recently been tracking its share of European trading. Stephen Wilson, the company’s business development director, believes that the exchange is still garnering 8 to 10 percent; it gets at least 5 to 7 percent through SWX. Wilson adds: “We’re not out to take all the liquidity or take over the world. We’ve had a good, solid start in creating a cross-border exchange.” But that early spike was clearly a case of virt-x loyalists pumping up the volume.
Virt-x’s selling points include clearing speed, flexibility in settling trades and lower costs. “The growth potential is in cross-border trading. We want to bring the cost of those trades down to national tariffs,” asserts virt-x CEO Antoinette Hunziker-Ebneter. But like any new exchange, virt-x needs to build liquidity, and most of it comes from SWX. “In terms of the quality of the non-Swiss flow, there are a lot of question marks,” says the deputy head of equities at one member bank.
Says a London Stock Exchange spokesman: “Our figures suggest virt-x had reasonable business in the first two days, but that seems to have dropped back. We’re not complacent about competition and recognize that in this marketplace business will be done with the provider of the most attractive services at the lowest cost.”
Indeed, traders pay less attention to venue than they do to costs. Says the head of equity trading at a large private bank, “We go for the best execution; the price is the price is the price.”
- Conrad de Aenlle
Ditmore takes a shot at Bank One
As chief information officer of Ameritrade Holding Corp. for the past two years, James Ditmore didn’t call attention to his background in military systems and secretive “black projects.” But the engineering and complexity management skills that he honed while working in the 1980s for defense contractors GRC International and Mitre Corp. certainly came in handy as he transformed Ameritrade into one of the speediest and lowest-cost operations in online brokerage.
Ditmore, 41, will need all the abilities that he brought to Ameritrade - and more - in his new job as chief technology officer for infrastructure and operations at Bank One Corp. The $270 billion-in-assets banking giant’s annual technology spending - $2 billion, according to Needham, Massachusetts, research firm TowerGroup - is five times Ameritrade’s total operating expenses. And Chicago-based Bank One’s challenges are legion: Profits are hurting from credit card and other loan problems, and the bank is still struggling to integrate multiple systems acquired in a string of 1990s mergers. One of those projects involves combining its flashy but failed WingspanBank.com online service into the main bankone.com site.
“We’re working on turning a poor-performing shop into a competitive one. We’re going to work with the vendors and make each aspect of the company’s technology world class,” says Ditmore, who in July joined a high-level team being formed by Bank One CIO Austin Adams to exorcise those back-office demons.
Ditmore, who earned a mathematics and science degree from the College of William & Mary, comes by his calling honestly. His father, a retired air force pilot and engineer, also worked for McLean, Virginia-based Mitre, where he helped to design the air traffic control system. The younger Ditmore, after putting in three years of miltary and civilian work at Mitre, moved to MCI Communications Corp. in 1988 as director of technology planning.
In 1995 Thomas Lewis, chief information officer of Baltimore-based insurer USF&G Corp., recruited Ditmore to help build an infrastructure for a company that, Ditmore says, “hadn’t spent a dime on technology.” That turnaround ended in 1998, when USF&G got acquired by the St. Paul Cos., and Ditmore briefly went to work for Bell Atlantic Corp. (now Verizon Communications). But in March 1999 Lewis, then co-CEO of Ameritrade, called again. He brought Ditmore in as CIO to supervise a $100 million overhaul of an overtaxed back office that was on the brink of collapse.
“In two years we built the fastest site on the Web,” says Ditmore, citing response-time measurements by online tracking company Keynote Systems.
Lewis left Ameritrade for personal reasons in the summer of 2000, but Ditmore stuck around. He left after Joseph Moglia, the Merrill Lynch & Co. veteran who became Ameritrade’s CEO in March, announced a restructuring that would have required Ditmore, who resided in Maryland, to move to Ameritrade’s headquarters in Omaha, Nebraska. Instead, Ditmore moved to a Bank One facility in Columbus, Ohio.
The bank outsources much of its processing; Ditmore is more accustomed to setting standards for systems he controls. But he says he can compensate: “I certainly know the technology. And I know whether the engineer is doing a good job.” - Jacqueline S. Gold
All for FX
With the June opening of Atriax, foreign exchange buyers and sellers now have three well-funded online marketplaces competing for their transactions. But Daniel Morehead, CEO of London-based Atriax, considers one form of competition far more imposing than the two earlier entries - Currenex and FXall.
To Morehead, that competitor is the old-fashioned way of dealing over the telephone. Of the roughly $1.2 trillion in daily foreign exchange volume, no more than 5 to 10 percent is electronically traded. With so much up for grabs, the rivalry between the three portals could take a long time to play out. And first, they all agree, they have to take prospective customers to school.
“It takes a bit of education to help people think through how this will make the work-flow cheaper, easier and more efficient,” says Morehead, a former head of macro trading at the Tiger Management hedge fund group, who took the top Atriax job last year.
Seeded financially by Citigroup, Deutsche Bank, J.P. Morgan Chase & Co. and Reuters Group, Atriax has signed up 70 banks, making it the biggest of the online contestants by that measure. At its launch Atriax offered spot, outright forward and swap dealing in 43 currencies, covering 98 percent of the market.
FXall - short for FX Alliance - is following a similar consortium approach, also with Reuters’ support. The New York-based platform went live in May; it has 16 banks providing automated price quotes and lists 50, including some Atriax members, as liquidity providers.
“The feedback we get from clients is that we provide them the most functionality that’s live today,” says Mark Warms, FXall’s chief marketing officer for Europe. “We’re clearly the leader in making straight-through processing a reality for our clients.”
Currenex, though it beat the two others to market by more than a year, is criticized by some as a venture-capital-backed start-up. Says Warms, “It is important for clients to choose a platform that will have the financial resources to be around in six months.” But Menlo Park, California-based Currenex has raised $51 million and is showing some staying power.
Like the others, Currenex has not disclosed volumes. But it has 45 participating banks and a comparable number of companies on the buy side, including Intel Corp. and Royal Dutch/Shell Group. The latter has invested in Currenex.
Morehead believes that Atriax, which has $80 million in capital, can triumph by brute force, eventually extending beyond forex. “We’ve always set our sights on becoming a universal portal, so users can access all liquidity on one site,” he says. “Our strategy is to offer all the foreign exchange products, all the currencies at the same price, to have options, and later to put money markets and deposits in the system so it becomes a single source of liquidity.”
“I think that we will be profitable toward the end of 2002,” he predicts. Decisions will be made in early 2002 about trading in other asset classes. - Jane Adams
