Banks should have the courage of their convictions

What happens to FXall and EBS will have important implications for the banks that own them and their customers. Indeed, it is the structure of ownership that has determined, for better and worse, how they have operated. Being owned by the world's largest banks has two key benefits.

First, there is, in theory at least, an almost bottomless pit of capital to invest in the latest and best technology. Second, the platforms have a captive pool of liquidity providers who have a financial interest in seeing them succeed.

However, the first of these benefits does not seem in EBS's case to have come to pass. The platform was required to put a pause on taking new customers last November because its execution capabilities were too slow to stop banks having prices picked off, according to banking sources.

The owner banks have little immediate incentive to pile in cash to a business in which they own a small minority share. The end result has been that action was only taken when it was too late to prevent the owner banks suffering as a result of the inadequate technology.

The second benefit of bank ownership – the captive liquidity it delivers – has turned out to be a double-edged sword. It has to an extent acted as a brake on innovation. If a business is guaranteed customers, why should it develop new products and services?

The injection of capital into both businesses will be accompanied by fresh ideas and a less convoluted decision-making structure. In a sense it is a shame that it looks as though the banks do not seem to have the full courage of their convictions.

It is thought some of the banks are looking to hold onto minority stakes at both FXall and EBS. This is understandable, as there will obviously be a temptation for the new owners of the businesses to look elsewhere for liquidity. This is unlikely to happen, though, if only because there are few other places to go to find it.