07.11.2012

FX Platforms Continue To Tweak Rules In Bid To Discourage HFT

07.11.2012
Terry Flanagan

A foreign exchange trading platform is the latest to make a stand against high-frequency trading by tweaking its trading rules, in a bid to regain lost volumes from its core investment banking clients.

EBS, an electronic platform owned by ICAP, the inter-dealer broker, said in a statement that it was introducing new rules to boost liquidity by demanding that users complete a certain percentage of their trades.

High-frequency traders have become a growing presence in FX markets in recent years, but more traditional over-the-counter voice brokers have complained that ultra-fast traders are distorting the market.

“EBS’s global network and deep liquidity are very important to our clients,” said Gil Mandelzis, chief executive of EBS. “As such, we have encountered great passion and extensive collaboration from both banks and buy-side firms in updating the dealing rules and strengthening the overall clarity and robustness of EBS. We are grateful for all the support and enthusiasm and we look forward to making more announcements about our progress in the coming weeks, consistent with our commitment to being the most extensive pool of genuine, executable liquidity to all market participants globally.”

In close collaboration with its main investment banking clients, EBS is also looking to bring in new surveillance and monitoring systems as well as better systemic controls in the coming months.

However, the high-frequency trading community has hit back at the new rules, saying that they are anti-competitive.

“Foreign exchange markets are not transparent, open and regulated like the equities markets,” Mark Spanbroek, secretary-general of Brussels-based proprietary trading lobbyist FIA European Principal Traders Association (FIA EPTA), which represents firms that trade their own capital on European exchange-traded markets such as Knight Capital, Optiver, Citadel Securities and Quantlab Financial, told Markets Media.

“You can basically set the rules you like. It’s not like the equities world which are over-regulated whereas fixed income and the FX markets are under-regulated.”

Thomson Reuters, EBS’s main rival, has attracted more currency volumes to its foreign exchange market since November last year. Globally, daily flows to foreign exchange markets average around $4 trillion a day.

While two months ago Tradition, a Swiss rival of EBS with the backing of five investment banks, set up a new FX trading platform called traFXpure, which discourages the more predatory high-frequency trading firms.

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