Matchbook FX
Encyclopedia
Matchbook FX was an internet-based Electronic communication network
("ECN" or Electronic Trading Network) for trading currency
online in the FX or Foreign exchange market
.
Matchbook FX was initially conceived by Daniel Uslander, Ron Comerchero (commodity futures and equities traders) and Josh Levy (former Goldman Sachs
FX trader) of the New York based proprietary FX trading firm Valhalla Forex Inc. and officially formed in April 1999 as a partnership between Valhalla Forex and the Florida based equities-trading technology firm NexTrade ECN. Several months later, GlobalNetFinancial.com, a NASDAQ-traded financial news and technology firm, bought in as the third major equity partner in the three-way joint venture.
As one of the earliest providers of open-access FX e-trading, Matchbook FX received considerable acclaim for its efforts to instigate change and level the playing field in the insular, closed, clubby and highly profitable domain of interbank Forex dealing, likely to the chagrin of the major international money center banks. Matchbook FX was recognized in 2000 as one of Silicon Alley Reporter
Magazine's "12 to Watch", its annual listing featuring top internet companies.
, Goldman Sachs
, UBS, Deutsche Bank
or Citibank
) in the "interbank market" or by phone between large banks and their multinational corporate clients (such as IBM
, Intel, Coca Cola, etc.) or institutional clients (such as hedge funds, pensions, mutual funds and other asset managers).
Despite on-line FX "e-trading
" being rare at the time, Matchbook FX's approach was also considered unique by market participants because of its stated aims to democratize the Foreign Exchange market by empowering all "Buy side
" FX participants (including retail traders and institutions) to be, for the first time, "Price-Makers" instead of only "Price-Takers." Matchbook FX functioned as an open limit order-book, similar to an online exchange, where any participant subscribed to the network could either post its own bids and offers just like a market maker
, or immediately trade on any other existing bids and offers for a given currency. This process allowed users to join or better the prevailing prices in the network and thus directly impact (and tighten) the bid/ask spread widths on which they traded. As such, Matchbook FX was considered to be one of the main catalysts that presaged rapid technological advances, sharp compressions in bid/ask spreads and other sweeping changes into the currency market.
Matchbook FX was also unique in that, in addition to its own user-generated bids and offers, it was the first ever e-FX trading platform to feature dynamic fully automated, executable streaming currency prices (as opposed to Request for Quotation
"RFQ" driven prices) contributed directly from a major FX bank (rumored to have been Deutsche Bank
). Though such a configuration is now commonplace, it was widely considered by those in the industry to be a technological innovation in 1999.
Matchbook FX also innovated on the US FX regulatory front, by being the first major US-based FX dealer to voluntarily subject itself to NFA (National Futures Association
) regulations, prior even to the Commodity Futures Modernization Act of 2000
. At the time of Matchbook FX's launch, a handful of other retail-focused online FX dealers existed, none of which were NFA regulated, notably CMC Markets
, GFT Forex and MG Forex but these firms served as market-makers where clients could only trade on the prices they were streamed, at bid/ask spreads they could not control. Following Matchbook FX, many technology-driven FX trading operations soon emerged including Currenex
, Atriax (now defunct), FXall, Hotspot FX (a Matchbook FX carbon-copy ECN), as well as FXCM
, Gain Capital
and Saxo Bank
which together with CMC Markets
ushered in an explosive new era of online retail FX trading.
in 2000 severely hindered Matchbook FX's ability to raise continued operating funds. The stock price of GlobalNetFinancial.com (NASDAQ: GLBN), Matchbook FX's main financial backer, fell from a high of over $70 per share in 2000 to less than $1 per share by the end of 2001. By 2002, Matchbook FX was sold to a consortium of investors who made the decision to discontinue the Matchbook FX brand.
Electronic communication network
An electronic communication network is the term used in financial circles for a type of computer system that facilitates trading of financial products outside of stock exchanges. The primary products that are traded on ECNs are stocks and currencies. The first ECN, Instinet, was created in 1969...
("ECN" or Electronic Trading Network) for trading currency
Currency
In economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
online in the FX or Foreign exchange market
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
.
History
Founded in 1999, Matchbook FX (sometimes referenced as MatchbookFX) was the world's first open and inclusive internet ECN for Foreign Exchange trading, available to all willing FX trading participants including hedge funds, CTAs, banks, corporations and, uniquely at the time, retail FX traders as well.Matchbook FX was initially conceived by Daniel Uslander, Ron Comerchero (commodity futures and equities traders) and Josh Levy (former Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
FX trader) of the New York based proprietary FX trading firm Valhalla Forex Inc. and officially formed in April 1999 as a partnership between Valhalla Forex and the Florida based equities-trading technology firm NexTrade ECN. Several months later, GlobalNetFinancial.com, a NASDAQ-traded financial news and technology firm, bought in as the third major equity partner in the three-way joint venture.
As one of the earliest providers of open-access FX e-trading, Matchbook FX received considerable acclaim for its efforts to instigate change and level the playing field in the insular, closed, clubby and highly profitable domain of interbank Forex dealing, likely to the chagrin of the major international money center banks. Matchbook FX was recognized in 2000 as one of Silicon Alley Reporter
Silicon Alley Reporter
Silicon Alley Reporter was an American trade publication focused on New York's Silicon Alley.Founded by Jason Calacanis in 1996, then was renamed the Venture Reporter in 2001 and was eventually sold to Dow Jones in 2003....
Magazine's "12 to Watch", its annual listing featuring top internet companies.
Unique aspects
Prior to Matchbook FX, most FX trading was transacted mainly by phone or amongst large banks (such as ChaseChase (bank)
JPMorgan Chase Bank, N.A., doing business as Chase, is a national bank that constitutes the consumer and commercial banking subsidiary of financial services firm JPMorgan Chase. The bank was known as Chase Manhattan Bank until it merged with J.P. Morgan & Co. in 2000...
, Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
, UBS, Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
or Citibank
Citibank
Citibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
) in the "interbank market" or by phone between large banks and their multinational corporate clients (such as IBM
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
, Intel, Coca Cola, etc.) or institutional clients (such as hedge funds, pensions, mutual funds and other asset managers).
Despite on-line FX "e-trading
Electronic trading
Electronic trading, sometimes called etrading, is a method of trading securities , foreign exchange or financial derivatives electronically...
" being rare at the time, Matchbook FX's approach was also considered unique by market participants because of its stated aims to democratize the Foreign Exchange market by empowering all "Buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
" FX participants (including retail traders and institutions) to be, for the first time, "Price-Makers" instead of only "Price-Takers." Matchbook FX functioned as an open limit order-book, similar to an online exchange, where any participant subscribed to the network could either post its own bids and offers just like a market maker
Market maker
A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread, or turn. From a market microstructure theory standpoint, market makers are net sellers of an option to be...
, or immediately trade on any other existing bids and offers for a given currency. This process allowed users to join or better the prevailing prices in the network and thus directly impact (and tighten) the bid/ask spread widths on which they traded. As such, Matchbook FX was considered to be one of the main catalysts that presaged rapid technological advances, sharp compressions in bid/ask spreads and other sweeping changes into the currency market.
Matchbook FX was also unique in that, in addition to its own user-generated bids and offers, it was the first ever e-FX trading platform to feature dynamic fully automated, executable streaming currency prices (as opposed to Request for Quotation
Request for Quotation
A request for quotation is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services. RFQ, generally means the same thing as IFB ....
"RFQ" driven prices) contributed directly from a major FX bank (rumored to have been Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
). Though such a configuration is now commonplace, it was widely considered by those in the industry to be a technological innovation in 1999.
Matchbook FX also innovated on the US FX regulatory front, by being the first major US-based FX dealer to voluntarily subject itself to NFA (National Futures Association
National Futures Association
The National Futures Association is an independent self-regulatory organization and watchdog of the commodities and futures industry in the United States. The NFA oversees and protects investors from fraudulent commodities and futures activities. The NFA also provides mediation and arbitration...
) regulations, prior even to the Commodity Futures Modernization Act of 2000
Commodity Futures Modernization Act of 2000
The Commodity Futures Modernization Act of 2000 is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton...
. At the time of Matchbook FX's launch, a handful of other retail-focused online FX dealers existed, none of which were NFA regulated, notably CMC Markets
CMC Markets
CMC Markets is a UK based financial derivatives dealer. The company offers online trading in spread betting, Contract for difference and Foreign Exchange across world markets...
, GFT Forex and MG Forex but these firms served as market-makers where clients could only trade on the prices they were streamed, at bid/ask spreads they could not control. Following Matchbook FX, many technology-driven FX trading operations soon emerged including Currenex
Currenex
Currenex, Inc. is a New York based company that provides a platform for the electronic foreign exchange market providers. It focuses on connecting buy and sell side forex traders using the FIX protocol and other application programming interfaces...
, Atriax (now defunct), FXall, Hotspot FX (a Matchbook FX carbon-copy ECN), as well as FXCM
FXCM
Forex Capital Markets, better known as FXCM, is a retail on-line foreign exchange broker based in New York. It provides its services through its own on-line trading platforms and through third party platforms such as MetaTrader 4....
, Gain Capital
Gain Capital
GAIN Capital is a global provider of online trading services based in Bedminster in the United States. GAIN Capital provides market access and trade execution services in foreign exchange, contracts for differences and exchange-based products to retail investors...
and Saxo Bank
Saxo Bank
Saxo Bank is an online Danish investment bank. It was founded as a brokerage firm in 1992, under the name Midas Fondsmæglerselskab, by Lars Seier Christensen, Kim Fournais and Marc Hauschildt. The name was changed to Saxo when the company obtained a banking license in 2001. Saxo offers trading...
which together with CMC Markets
CMC Markets
CMC Markets is a UK based financial derivatives dealer. The company offers online trading in spread betting, Contract for difference and Foreign Exchange across world markets...
ushered in an explosive new era of online retail FX trading.
Final days
The implosion of the dot-com bubbleDot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
in 2000 severely hindered Matchbook FX's ability to raise continued operating funds. The stock price of GlobalNetFinancial.com (NASDAQ: GLBN), Matchbook FX's main financial backer, fell from a high of over $70 per share in 2000 to less than $1 per share by the end of 2001. By 2002, Matchbook FX was sold to a consortium of investors who made the decision to discontinue the Matchbook FX brand.
External links
- The Economist Magazine, August 19, 2000
- Euromoney Magazine, Cover article, June 2000
- Economist Magazine, August 19, 2000
- http://www.nextrade.com NexTrade Holdings, Inc. / NexTrade ECN http://www.nextrade.com
- http://www.smartmoney.com/investing/stocks/A-New-Refuge-for-Day-Traders-7584/ SmartMoney Magazine April 27, 2000
- http://www.highbeam.com/search.aspx?q=MatchbookFX%20Files%20for%20U.S.%20Patent Matchbook FX Files for U.S. Patent for Currency Trading Platform