ACTForex sees benefits in retail FX trading

NEW YORK, June 4 (Reuters) - A world of diminishing foreign exchange volumes and consolidation among online currency trading platforms are of little concern to upstart ACTForex, which sees its future being led by the emergence of retail currency market players. Based in New York, ACTForex, Inc. is one of the few software providers for Internet-based currency trading operations that cater to retail companies and institutions that are either involved or interested in getting involved in the currency brokerage business. It differs from larger FX platforms such as FXall, Currenex and State Street's FXConnect in that it is not targeting a cash delivery business nor it is a price-making exchange. Rather, ACTForex bills itself as a service provider for futures commission merchants (FCMs) that day trading firms and banks can use for on-line FX processing, made easier with the automated processing technology it offers users.

In an interview with Reuters, ACTForex's president, Ilya Sorokin, said his company's strategy was to develop cachet with smaller banks and other financial institutions that are looking to derive new revenues from market making for on-line currency investors. We anticipate doing business with brokerage firms and smaller banks but not larger banks, Sorokin said of his Internet-based trading operation. We have signed up five FCM's and one bank in the U.S. to offer retail FX trade. In the next year, we anticipate adding three or four more banks as well as becoming an industry standard on-line platform for FX brokerage operations.

As it stands, ACTForex is most active with small and medium-sized companies that choose to do business in the $1.2 trillion a day foreign exchange market. ACTForex's customers take advantage of the constantly growing on-line currency investment segment of global foreign exchange.

Smaller banks key in shrinking market

Boasting of ACTForex's operational ability, Sorokin said its clients were among the few in the financial world that were able to stay operational after the terror attacks of Sept. 11, despite sparse liquidity after Wall Street shut down. Our licensees were not hurt by currency fluctuations because they were able to liquidate their positions (immediately) at the time of the crisis," Sorokin said, adding that he hoped to leverage this in making inroads into the retail-banking sector.

But by most indications, ACTForex has its work cut out for it. In recent years, the currency market has been beset by waves of consolidation among banks amid diminishing trading volumes. Last year, the Bank of International Settlements attributed consolidation in the currency market to the advent of the euro, as well as the shift to electronic trading. Additionally, online currency trading is a small part of the overall $1.2 trillion a day FX market. According to financial research consulting firm Greenwich Associates, total FX volume traded online by major institutions more than doubled in 2001, to $1.8 trillion from $857 billion in the prior year.

But Sorokin thinks ACTForex's saving grace may be that, however slowly, corporations and institutions are gradually making the switch from the telephone to the computer mouse. He added that ACTForex is negotiating to offer its currency trading platform to day-trading equity firms, which "is a very attractive market for us" and very interesting business expansion opportunity for them. The retail market was just recently placed under the regulatory oversight of the Commodity and Futures Trading Commission, while the vast global market remains unregulated. Sorokin said regulation by the CFTC makes the retail market "much more attractive for day-trading, because now they are aware of what they have to comply with".