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Foreign Exchange

Volumes slide at EBS in August; nearly halve on the year

FX volumes at EBS, the Icap-owned electronic broker and once the world’s largest FX trading platform, fell sharply in August, as the lack of volatility in the market weighed on activity.

Average daily spot volumes at EBS were $95.5 billion last month. That was down 11% from July and 49% lower than August last year. It was also the lowest since Icap bought the firm in 2006 and just the second time that volumes on EBS have slipped below the $100 billion mark.

 EBS average daily volumes ($billion)

 
The drop in volumes at EBS is likely to put more pressure on the firm’s management team, which this week announced a series of changes to the trading rules on its platform after a review by new chief executive Gil Mandelzis.

He believes the changes will address EBS client concerns about the ability of high-frequency trading systems to take advantage of decimalization in FX trading, as well as their ability to transact currencies at high speeds.

He will be hoping that the refinements to EBS’s brokerage mechanisms will result in a pick-up in volumes once they are implemented on September 17.

EBS is not, however, alone among leading FX trading venues in seeing a drop in volumes last month.

Thomson Reuters, which last year overtook EBS to become the largest FX platform by volume, saw volumes drop by 11.5% in August, while CME Group reported a 9% fall. Volumes on both platforms dropped to levels last seen in 2009.

“The question everyone in the institutional FX sector is asking, is whether the near-term precipitous drop in FX volumes represents just a very slow summer or some more serious shift in trading patterns,” says Gerald Segal, managing director at online FX analysis firm LeapRate.

The answer would appear to be a combination of both, with the traditional summer lull coinciding with a marked drop in volatility.

Indeed, by some measures, FX volatility has dropped to its lowest level since August 2008, just before the collapse of Lehman Brothers wrought turmoil across global financial markets.

A main factor in driving down volatility and boosting investor confidence was European Central Bank (ECB) president Mario Draghi’s pledge in late July to do whatever it takes to preserve the euro.

The announcement on Thursday of a new peripheral bond-buying scheme from the ECB saw Draghi make good on that promise. In the short-term, that should keep a lid on volatility – and hence FX volumes.

However, some believe the market has become complacent about global growth and that the current optimism across financial markets will dissipate. If they are right, FX activity should pick up in the coming months.

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