EBS announces new trading rules to create fairer marketplace
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Foreign Exchange

EBS announces new trading rules to create fairer marketplace

EBS, the FX interdealer trading platform run by Icap, on Tuesday published new dealing rules for counterparties that trade on the platform, as it seeks to eradicate technology and latency arbitrage that has favoured certain market participants.

The new rules are part of an extensive document that has been developed in co-operation with 30 institutions across the market, from banks and buy-side firms, before EBS circulates a draft and solicits feedback from its customer base, the company says in a statement. Multiple AIs scrapped

The new rules include a new AI policy and guidelines section, and combines the EBS Prime rules, spot rules, non-deliverable forwards rules and counterparty support obligations.

It also includes enhancements such as increased quote-fill and hit-fill minimum targets, and an updated out-of-region quoting policy. The new rules will be reviewed at least once a year in collaboration with the platform’s clients.

EBS has attempted to address several key concerns, while also, it seems, giving up some revenue. On the issue of multiple AIs, or individual connections to the system, there were claims that some high-frequency funds had as many as 80 AIs at one time, at an estimated cost of $5,000 a month.

This made it difficult for legitimate market makers to identify predatory pricing behaviour. Institutions are now limited to one AI per region, as well as only one EBS live subscription.

Fill ratios

In relation to fill ratios, all quote-fill and hit-fill ratio targets are under review. Penalties for non-compliance on quote-fill ratios will include a reduction in throughput capacity, increased minimum quote life (MQL) and, ultimately, suspension from EBS. On hit-fill ratios, enforcement sanctions might include removal of hit submit capability.

New rules on disruptive behaviour

EBS will actively monitor and report disruptive behaviour, such as flashing (manual or otherwise), pulsing, self-matching and out-of-region quoting. Repeated offending will be considered a breach of the dealing rules.

In reference to self-matching, EBS will prohibit intra-group self-matching between deal codes controlled by the same institution within the MQL period, or sub 250 milliseconds. Failure to comply will lead to self-matching being disabled.

EBS also plans to make further enhancements to the systems, including new surveillance and monitoring systems, systemic controls and other new initiatives, about which they were not more specific.

EBS will be hoping that the new initiatives will placate some serious concerns from some of the leading market makers about the integrity of the EBS platform as a trading exchange that operates in equal fairness for all forms of users.

In May, Tradition, a rival interdealer broker, announced it was forming a new platform in collaboration with a group of leading FX banks called traFXpure, and said its goal was to provide market participants with a low-cost, convenient and equitable venue for sourcing FX liquidity, open to all users on a fair and equal basis. The platform is slated to go live at the end of the year.

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