Citi to outsource e-liquidity

The move will allow small to medium-sized banks to gain access to Citigroup's large forex liquidity pool through the White Label product, and aims to capitalise on the industry trend towards large market-makers servicing smaller banks as 'buy-side' customers.

"If you look at the market surveys, you would find that the number of sell-side participants is decreasing and that the number of market-makers in various currencies is decreasing," Srivastava said. "The business many of these banks are doing is based on relationships with customers and meeting the needs of those customers - it's not about being a market maker in forex."

He added that this trend was behind Citigroup's decision to develop the White Label product. "A number of banks are essentially moving from the sell side to the buy side of forex," Srivastava said. "The whole product is designed to fulfil this need in the market."

The potential client base is almost limitless. "Our primary customer would be another bank," Srivastava said. "The product in turn can be white labelled to those banks' customers and that number could be an extremely large number." He added that there are no technological constraints on the amount of customers that could use the product.

"In the end, all the liquidity flows into Citi's primary processing systems, which handle a very large volume of flow," added Harpal Sandhu, president and chief executive officer of Integral. "This product is fully integrated into that structure."

The platform will be aimed at three types of customer. First, customers of banks who use White Label will see the platform branded for that bank on their desktops, but the prices and risk will be transferred back to Citigroup and the deals will be booked on both banks' systems.

Second, forex salespeople at customer banks will also be able to use the product to service clients who do not trade online but deal via the telephone or other non-electronic channels, still giving them access to the liquidity pool.

Finally, the platform can be used by traders at client banks, utilising a feature called 'split liquidity'. "For example, you may have a Scandinavian bank that is an expert in a few currencies," Srivastava told FX Week. "In the other currencies they can mix and match their liquidity with ours to provide the right set of prices to their customers."

The system has been in development for around nine months, but the technology architecture includes elements of products that both firms have developed previously.

Customer banks will be dealt with on a bilateral credit line basis, but this may shift in the future. "That may change with the changes associated with CLS and the growing popularity of prime brokerage," Srivastava said.