The UK-based innerExchange was founded in 2006 to develop trading platforms, targeting primarily the inter-dealer broker (IDB) sector in the over-the-counter (OTC) world, although it also sells into exchanges and trading venues, as well as into companies undertaking systematic internalization for more efficient trading and Markets in Financial Instruments Directive (MiFID) compliance. IDBs are specialized securities companies serving as intermediaries that facilitate transactions between broker/dealers and dealer banks to facilitate inter-dealer trades.

In the OTC segment, the firm targets specifically the product-driven, community-driven part of that market, which deals in non-standard and non-normalized products and structures, making it critical to offer as much flexibility as possible in product definition. A further level of complexity is that this part of the market frequently involves bilateral agreements for trading with counterparties and needs to be able to involve only counterparties that are relevant for a specific product/structure and match the requirements of the IDB's compliance department.

innerExchange currently offers a componentized platform, written to run natively on the Financial Information eXchange (FIX) Protocol. It refers to the overall platform as inExFlex, with individual modules that include:

*Static Data Management, a component allowing users to define in real time very complex structures/products to be traded immediately with selected counterparties;

*Best Execution Active Router, a smart order router providing routing criteria granularity to the level of the fees and taxes involved in transactions before routing order flows;

*Pricing Engine, which can integrate external market data sources and external price calculation engines, then disseminate information in the publish/subscribe paradigm;

*Execution and Order Management System, which integrates with external risk control and management components, providing real-time management of orders and positions;

*FIX connectivity, providing bi-directional access to other pools of liquidity;

*Market Control and Monitoring, a supervision/surveillance module to monitor and control the markets, products and counterparties involved;

*Presentation Layer, a zero-footprint web graphical user interface with an IM2FIX instant messaging trading facility and a full portfolio management system.

innerExchange is thus offering technology to participants in OTC trading that enables them to automate their processes, so an extension of that capability to the foreign exchange (FX) world is a logical one. Equally, there is growing pressure from regulators around the world for all forms of OTC trading to move onto exchanges for greater accountability, visibility and, ultimately, control, so anything that eases and speeds such a move should appeal to market participants.

The development of a platform for the FX sphere is an interesting one in another respect, since it is indicative of how FX is increasingly being traded electronically, with new competitors emerging to the big three electronic communication networks (ECNs), namely Currenex, Electronic Broking Services and FXall. Furthermore, UK-based brokerage Alpari plans to launch its own ECN offering next year, and the platform innerExchange is developing will thus underpin another competitor in this space.

Rik Turner

A service of YellowBrix, Inc.