B2B Takes Off: Forex to eSteel.com

B2B financial exchanges are proliferating in the securities marketplace in nearly every instrument category. Though business models are still evolving, the classic tension between proprietary broker/dealer sites run by consortiums vs. third party portals is heating up.

Witness the competition brewing between MarketAxess and Securities Hub-two consortium-based B2B sites geared to fixed income securities. See MarketAxess Goes Global by Signing Three Large Clients," p. 22 MarketAxess-whose investors are Bear Stearns, J.P. Morgan and Chase- is evolving into a global platform for trading fixed income securities electronically, whereas Securities.Hub, a rival consortium backed by Merrill Lynch, Goldman Sachs and Lehman Brothers, is setting up Syndicate.Hub as an information site for bond issues, and directing portfolio managers to proprietary sites for transactions.

And some manual B2B markets-private placements-an exclusive club for institutions-are now reaching out to consumers via the Internet. See "Private Equity: Web Sites Deliver Deals to the Masses," p. 24.

Community sites are also emerging in the once secretive hedge fund arena. Now there is Altvest and Hedgeworld for hedge funds See, "Portals," p. 9, but in the commodities field, HoustonStreet Exchange is making a splash in energy, and soon will add futures. See, "HoustonStreet Expands," p. 23. Although the securities industry tends to be "incestuous" when it partners with technology companies, Tower Group analyst Bob Iati, believes the derivatives market is wide open to letting in new competitors.

Neutral, portal-type auction sites are starting to permeate the capital markets and gain the attention and respect of industry veterans.

For example, Currenex, a new B2B auction site "is about transforming the world of foreign exchange into e-commerce," says president and CEO Lori Mirek, who came from America Online/Netscape and picked the global foreign exchange market because it was highly fragmented and felt she could bring operational efficiency to smaller-size trades.

Even though banks have invested hundreds of millions of dollars building proprietary systems, the trend is toward multi-bank e-commerce sites, contends Mirek, citing a Greenwich Research study that said 95-96% of corporations and fund managers favor multi-bank trading. "Our approach is Switzerland," she says.

Trading among the banks began in the second half of 1999, but the site was officially launched on April 27 with spots, forwards and swaps. MasterCard executes over 90% of its worldwide foreign exchange transactions over the system, she says. Operated as an application service provider (ASP), the 100% Web-based service simply requires users to log onto a browser via a URL.

While current B2B efforts are fairly insular to the securities marketplace, the next big opportunity is for Wall Street firms to provide services, to non-financial B2B marketplaces like eSteel.com and plastics.net. According to TowerGroup analyst Dushyant Shahrawat, large securities firms are eyeing B2B trading volumes which are expected to soar to over $1.5 trillion by the 2003, as forecast by Goldman Sachs. "Right now, securities firms don't have a strategy," he says. "You take eSteel.com, which had over 1,600 trades by large multi-million dollar steel companies transacting steel trades over the site. The opportunity is for financial services companies to become preferred providers of financial services, to those community of steel users," he says, adding "all of those B2B transactions involve a financial component," such as foreign exchange, hedging, clearance and settlement services.

Hope you enjoy the second issue of Wall Street eBusiness, and check out our new Web site: www.wallstreetandtech.com. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio