Trader increases transparency without waiting for regulations

Carlo Kölzer founded a company called 360T, an online exchange in Frankfurt for trading foreign currency, seven years ago. It now counts Siemens and Lufthansa among its customers and has just opened offices in New York and Singapore.

German politicians are struggling to persuade other countries to join an effort to put hedge funds and private equity firms on a tighter leash, but one German businessman is not waiting for regulations and is increasing transparency on his own.

Carlo Kölzer founded a company called 360T, an online exchange for trading foreign currency, seven years ago.

The company, based in Frankfurt, was founded during the dot-com bubble and took a while to take off, but it now counts Siemens and Lufthansa among its customers and has just opened offices in New York and Singapore.

Behind the rapid growth of 360T is a desire by banks - which sell foreign currencies to companies on the online system - for more transparency, even though firms are not required by law to go in this direction.

Customers like Jeremy Smart, an executive director at Morgan Stanley in London, have turned to Kölzer because, unlike traders on some anonymous exchanges, the banks that do business on 360T know exactly whom they are dealing with in buying and selling currency.

Increasingly, hedge funds have been taking advantage of the growth in online trading by running as many as 20 anonymous systems simultaneously, and executing an order for money only when it sees that one bank is offering an unusually good price.

In a liquid market like foreign exchange, a price that deviates significantly at one institution is usually caused by an error at the bank, which can occur because of, for example, a five-minute delay in processing information.

“The issue is, a lot of the anonymous platforms create an environment where some less-reputable clients have been able to take advantage of market imperfections,” Smart said.

In this business, such a trade is known as “poison,” because even though the bank was selected to execute the trade, it is likely to have lost money or to have made less money than competitors. As a result, major banks prefer more transparent trading systems like 360T’s.

The company has a 2.42 percent share of the global market for foreign currency traded online, up from 1.03 percent last year and 0.15 percent in 2005.