The mixed blessings of co-operation

The move by Deutsche, Barclays Capital and UBS to launch benchmark indexes should do much to bolster FX's reputation as an asset class. iBoxx, a bank-owned consortium with a strong track record in fixed income, is bringing together these top banks to make it easier for customers in the market for currency indexes to see what they are buying.

The current situation sees different banks measuring performance and charging fees in different ways. This leaves customers having to do complex arithmetic to work out whether putting money with one index rather than another is more cost-effective.

Putting the indexes under a common framework leaves customers free to compare and contrast performance of individual offerings. On a broader level, it will enable the banks that are on board to deliver a much stronger message to consumers about the benefits of investing in FX indexes.

Collaboration between banks in FX is nothing new. The most significant example of success was the formation of EBS, which has acted as a force for innovation as well as being a competitor to Reuters. However, EBS also acts as an example of the limitations of such co-operation. The bank-owned spot broker was a force that drove up volumes by pushing down prices in its early days.

However, it was the bank ownership that ultimately acted as a brake on EBS. Ownership by more than 10 of the world's largest banks ultimately led to a situation that made effective decision-making difficult. This led the company to fall behind the curve in its supposed area of strength – technology. It also enabled banks that were not on board to snipe from the sidelines, making it harder than it should have been for EBS to bring new projects such as its prime offering to the market.

FXall is another example of where co-operation has been a success, and it too points to its limitation. The bank-owned platform has the same limitations that EBS did in having numerous competing institutions on board. It also has to endure the snipers with an interest in seeing it struggle.

While FXall may not have made huge sums of money for its owners, it can be seen as a success for those who launched it. With its competitors it has increased competition, driven down prices and made FX a more attractive place for investors.