09.05.2012
By Terry Flanagan

Brokers Back EBS’s New FX Trading Rules

A foreign exchange trading platform has moved to address customer concerns over high-frequency trading by releasing a new set of trading rules.

EBS, an electronic platform owned by ICAP, the world’s largest inter-dealer broker, said that it is issuing system and policy changes to the platform after extensive consultation, following the publication of EBS’s new dealing rules in July, with both the buy and sell sides.

The finalized rules include plans to widen the spreads on a selection of core pairs on its platform—with full-pip and half-pip pricing to return on these major currency pairs instead of decimalized pricing, revised quote and hit fill ratio targets and new quoting guidelines for Asian trading hours to discourage arbitrage opportunities.

“We looked very carefully at the consequences of decimalized pricing, and we came to the conclusion that decimals are not optimal for the type of market we are running,” said Gil Mandelzis, chief executive of EBS.

High-frequency traders typically operate in markets with high liquidity and FX is the world’s largest and most liquid financial market. The rise of HFT into an increasingly automated forex market, with EBS, in particular, becoming a hotbed of HFT activity, has made it more difficult for the manual trading segment to compete effectively.

EBS’s new rules are an attempt to build a more level playing field for the banks, who still indulge in manual trading, and also help EBS regain its number one position in terms of volume share from rival Thomson Reuters, which has consolidated its lead over its main rival in recent months.

“EBS has a unique role at the heart of the foreign exchange market and we recognize how important it is to respond to its changing dynamics,” said Mandelzis. “We are very grateful for the support we have received throughout this process from all major sell and buy side participants and the entire EBS community in order to strengthen EBS’s robustness, resilience and leadership in the market.”

BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs and Getco, the U.S. electronic market making firm, have all backed EBS’s planned changes, which are scheduled to go live from September 17.

‘”We are very supportive of the collaborative strategy that EBS has followed to strengthen the platform and improve the overall efficiency and transparency of the FX market,” said Sean Castette, global head of FICC at Getco.

New FX platforms are also set to descend the market, which may also have provoked EBS into issuing the new rules. One of the major new entrants, dubbed traFXpure, is set to rival EBS when it launches later this year. The platform has been set up by Tradition, ICAP’s Swiss rival, and has the backing of a group of investment banks and has been designed specifically to limit the activity of HFT on its platform.

Following the publication of EBS’s draft trading rules in July, Mark Spanbroek, secretary-general of Brussels-based proprietary trading lobbyist FIA European Principal Traders Association, which represents firms that trade their own capital on European exchange-traded markets, told Markets Media that he was against any such moves to curtail HFT in the marketplace.

“Foreign exchange markets are not transparent and are not open,” said Spanbroek. “You can basically set the rules you like. It’s not like the equities world where things are open and transparent. Equity markets are over-regulated whereas fixed income and the FX markets are under-regulated.”

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