Almost all of the 10 biggest banks in the industry are thought to be behind the initiative, but non-disclosure agreements currently prevent them from discussing the matter publicly.
The plans reflect dissatisfaction among some banks about Icap PLC-owned EBS--currently the No. 1 currency dealing system for banks, with a daily average of over $160 billion in flows in November.
Some of the established banks in the industry feel that they have been put at a disadvantage in trading on this key system since fast-acting hedge funds and other non-bank dealing firms were first allowed to use it in 2005.
The plans could easily fall flat; establishing new platforms between competing banks is notoriously tough, and taking on EBS for some flows is an ambitious aim. In addition, Icap still has a chance of working with the banks to create a new system, some people familiar with the situation said. But if that falls through, the banks are set to execute some trades elsewhere.
"It's a case of telling EBS to come up with something for us, or alternatives will happen," said one key banker behind the project, which has a working title of Pure FX.
In an emailed statement responding to a query from Dow Jones Newswires, Icap said its EBS platform is the core source of liquidity in the professional global spot foreign-exchange market.
"We are committed to continuously engaging with our large and diverse customer base to ensure understanding of their requirements and to develop solutions that satisfy their needs," the brokerage said.
Sources familiar with the talks said none of the banks involved is understood to be considering leaving EBS, whose prices are viewed as the industry benchmark, particularly in key currencies like the euro, dollar, and yen.
"EBS is a key partner for us," said a senior foreign-exchange banker at one of the firms involved in the new venture. But if the plans go ahead in their current form, which is "very likely" according to one of the key bankers behind the initiative, EBS stands to lose 10% to 15% of its flows.
In pursuing their plans, the big banks whose dealing desks have traditionally been the middlemen in the giant global foreign exchange market have come full circle on their strategy for maintaining control of it. EBS itself was launched in 1990 by a consortium of banks seeking to challenge Reuters' dominance of electronic foreign exchange platforms.
The current issue comes down to the activities of some non-bank market-makers on EBS, which effectively compete with the banks for volumes in the $1.5 trillion-a-day spot foreign-exchange market.
These firms tend to be nimble and able to pump out and snap up prices at such extreme speed that they can nibble away at banks' large orders and make it difficult for the banks to complete large trades at the price they want.
EBS has long worked hard to balance the needs of the banks that were once its owners, and these newcomers, but some bankers are still unhappy.
"We want to create a level playing field where banks can trade with each other," said one of the bankers behind the rival project.
But others are skeptical of the banks' motives.
John Netto, president of New York-based proprietary trading firm M3 Capital LLC, said the proposal sounded like "a country club" where banks could trade away from upstart electronic firms that have put pressure on profit margins in foreign exchange.
"So that's how you handle competition?" said Netto, who added the end result of the banks' venture would be a more fragmented market for all investors.
Some market insiders believe that banks need to learn to live with the new reality of non-bank market-makers, rather than trying to revert to the time when they effectively controlled the market.
"These non-bank market-makers are both clients and competitors to the banks, and at a certain point they will become clear competitors," said one senior foreign-exchange banker who is familiar with the plans.
Some bankers are also unnerved at the prospect of splitting the core flows in the market onto an extra trading venue.
The banks behind the project will approach technology firms, asking them to pitch to build the new system, next week, two people familiar with the situation said.
All of the top-10 banks in foreign exchange declined to comment for this story.
Those banks are, in order: Deutsche Bank AG, UBS AG, Barclays Capital Plc, Citigroup, Royal Bank of Scotland Plc, JP Morgan Chase, HSBC, Credit Suisse Group, Goldman Sachs and Morgan Stanley.
According to benchmark data compiled by the Bank for International Settlements, banks account for 35% of spot foreign exchange trading each day.
This year's survey by the BIS showed that so-called "other financial institutions" - a term that encompasses non-bank market-makers among other firms - generated heavier flows than banks for the first time, with a 51% market share.