“The move to half pips has been welcomed by EBS participants and the wider FX market, and the changes have created a more orderly market and greater depth of book,’’ says Chris Purves, global head of electronic trading at UBS, in a press release issued by EBS.
EBS says their analysis indicates they are receiving more orders at each price point, with “significantly greater” depth of book, as well as a reduction in price flashing at the top of book.
Moreover, the exchange says that since it removed decimalization on its leading currency pairs and moved to half pips, the cancellation of orders in less than 500 milliseconds without being dealt had also fallen.
“From our perspective, there are a few measurements we wanted to improve: thickness at the top of book; reduction in flashing; improvement of price,” Mandelzis tells EuromoneyFXNews. “We can now confidently say we have seen a material and significant improvement compared to when we started this process.”
What that translates into, says Mandelzis, is a change in the mix of trading strategies – away from the super high speed styles, that were allowed to prosper under the decimalization model, to more traditional trading methods.
However, the changes made so far, including the announcement that half pips will be extended to EURCHF from 10ths, are only part of a long process of improvement, the firm says, and it expects to make further announcements before the end of the year.
“What’s next?” says Mandelzis. “We have a list of another 10 to 15 candidates we’re looking at. We will make decisions with respect to those probably in the first quarter of next year. There is a whole slew of aspects to our infrastructure and architecture, and also our role in the market and how people use it to arbitrage between various platforms, that we’re looking at.”
The revamp of EBS’s trading systems, its governance and surveillance comes at a time of depressed trading volumes in the market, which last month saw the exchange’s average daily volumes (ADVs) fall to their lowest level since 2006.
EBS is quick to say this does not mean it has lost market share – CME ADVs fell further, for example. Rather, it says that declining volumes in some client groups have been replaced with higher volumes in other groups.
|“Certainly, we have seen some strategies |
pull volume away from EBS – which we
had intended to happen – but we have
seen flow from other players grow by
hundreds of percentage points,” Gil Mandelzis
“Certainly, we have seen some strategies pull volume away from EBS – which we had intended to happen – but we have seen flow from other players grow by hundreds of percentage points and remain there consistently,” Mandelzis says.
Generally, however, the market feedback from the EBS changes has been positive, and all of the leading market makers have unanimously said the platform has become a better venue on which to trade and that the yields they extract from it have improved since the changes were implemented in September.
‘’We have seen and experienced a much more orderly market since EBS’s move to half pips in September and our own analysis shows large sizes are now cheaper to execute than they were before,’’ says Simon Jones, global head of FX e-trading at Citi.
However, there is still more to do, say market makers. They say there remain holes in the technology stack on EBS, where owners of multiple servers are still at an advantage. While EBS Live market data subscriptions have been limited to one licence per region, there still remains no cap on the ownership of EBS AI (account identifier). So the more identifiers one institution has, the more frequent it can get data updates, therefore giving it an edge.
Mandelzis admits there is still work to be done in this area. However, it is a sensitive issue for EBS because it represents a substantial part of its revenues. Although EBS does not disclose the monthly cost of these AIs, sources suggest they cost approximately $5,000 per month, and that many firms will own as many as 60 AIs, covering each currency pair and region.
The question will be how quickly EBS is willing to relinquish these revenues at a time when trading volumes are depressed.