A Bermuda company is about to change the way foreign exchange is traded.

The technology-driven revolution will see the all-powerful banking industry lose control of the world's largest market. The process is called disintermediation - the loss of control by an intermediary.

The Bear Stearns Companies Inc. has announced that its wholly-owned foreign exchange trading subsidiary Bear, Stearns Forex Inc., will participate in Forexster, a sophisticated on-line foreign exchange (FX) trading facility founded and based in Bermuda. Bear Stearns is the first financial institution in the FX community to announce its intention to embrace this application.

Forexster's patents-pending trading application provides on-line FX dealing services that are open to all participants on an equal footing. Bear Stearns and its clients, and all other supporting banks and their clients, may directly participate with one another as price-takers and price-makers. Forexster thus enables all participants to trade with each other without the need for direct credit relationships.

Forexster is the brainchild of Arman Glodjo, who was born in Sarajevo, Bosnia in 1968. His family later moved to Canada and he was hired by Bermuda-based master trader John Deuss some years ago to design trading systems for Mr. Deuss's oil trading companies.

Mr. Glodjo and a team of people he had hired spent three years with Mr. Deuss and then left as a group to pursue their own interests, managing hedge funds. Then, one afternoon, walking on Castle Point Beach, Mr. Glodjo solved a problem that had been dogging him: how to allow technology to change the way foreign currencies are traded. And then, he asked himself, if the forex market could be rebuilt, what would be the best possible way to operate it, the most efficient way, the logical end result of improving the process, now or ever.

Foreign exchange is an obscure world. Of all the world's markets, it is the largest in dollar terms. Volume runs at about $1.5 trillion a day. Buyers and sellers fall, in the main, into two groups: businesses managing the forward risk of their currency exposure, and speculators. In forex, the tail wags the dog: 90 percent of market activity is speculation, which makes the forex market a dangerous place to trade.

The "buy side" of the equation is made up of large companies, the upper tier of the Fortune 500 and their global counterparts, plus the speculators.

The "sell side" is a term used to describe the activities of the large commercial banks that between them "make" the forex market.

Forexster has patents pending on a business method and the technology that will revolutionise the forex markets: a virtual risk exchange that links forex customers to each other through the credit lines they already have with their banks, a "network of credit" to allow them to make and take quotes from each other and, by extension, all interested parties.

Forexster intends to deliver the endgame in foreign exchange auctions across existing counterparty relationships.

For Forexster to succeed, it must redefine the banks' role, from market makers to channels of trust.

The news that Bear Sterns, a major player, has signed up hurtles Forexster to the forefront of the exchange trading market.

Forexster supports direct order matching and "request-for-quote" services between any set of participants.

All users, financial institutions and their clients, will be able to trade anonymously with all credit-providing financial institutions and their clients. In addition, a participant's legal counterparty relationship with respect to settlements is preserved at all times, regardless of their ultimate trading counterparty.

"We believe that Forexster is part of the next-generation of FX trading applications," said Ross Taylor, senior managing director at Bear Stearns. "It is this type of innovation that we have always tried to make available to our clients. This facility offers our clients an additional option in trading FX."

Mr. Glodjo, founder and chairman of Forexster, commented: "We are delighted that Bear Stearns is the first financial institution to support a trading facility that represents the next evolutionary change in on-line FX dealing.

We believe that others will follow and that Forexster will provide a large, liquid, and a truly efficient mechanism for FX trading."

Founded in 1923, The Bear Stearns Companies Inc. is the parent company of Bear, Stearns & Co. Inc., a leading investment banking and securities trading and brokerage firm serving governments, corporations, institutions and individuals worldwide. With approximately $30.6 billion in total capital, the company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services.

Through Bear, Stearns Securities Corp., it offers prime broker and broker dealer clearing services, including clearing and securities lending.

Headquartered in New York City, the company has approximately 10,500 employees worldwide.

Forexster.com Limited's patents-pending suite of products provides a ground-breaking environment for efficient dealing in FX. It does so by enabling buyers of a currency pair to seek out and deal directly with sellers of a currency pair at best possible spreads offered by such sellers on the network given the buyers' and sellers' existing credit lines with their banks and the topology of the interbank credit network at the time a deal is made.

Forexster's "network-dealing" model thus enables direct dealing between parties at natural buyer/natural seller spreads for a particular FX instrument, as if the instrument were traded directly on a central exchange, without a need for a central exchange. Forexster is able to provide financial institutions sophisticated pricing engines, single-dealer applications, FX prime-brokerage services as well as full-featured network-dealing which links all participants across explicit or implicit lines of credit.

Additional information about Forexster can be found on the company's web site at www.forexster.com.