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Foreign Exchange

FX banks take on EBS; Tradition launches traFXpure platform

Tradition, the interdealer broker, has launched a new electronic interdealer broker, traFXpure, for spot FX, which will directly challenge EBS as the leading primary interdealer marketplace for foreign exchange.

Tradition announced on Wednesday that Barclays, Deutsche Bank, UBS, BNP Paribas and Royal Bank of Canada will be the initial market makers to the platform, which will be open to any market participant that can settle via CLS, according to a statement.

The platform will 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.

“What is different about this is that we have a matching logic, as well as equivalence of data distribution, low costs access and pre and post trade transparency which means there is a level playing field for all participants,” says Daniel Marcus, head of strategy and business development at Tradition.

The platform is based on Tradition’s existing Trad-X technology, which operates a euro interest-rate swaps-broking platform, and will offer complete symmetry of market data, at cost, to all participants at the same time in an attempt be as transparent and fair as possible.

Although the platform will be pre-trade anonymous, it is not a dark pool, and all counterparties will be disclosed on a post-trade basis.

The new matching logic, full post-trade disclosure, and cheaper access and convenience, via a standard FIX API, is a response from some of the biggest FX banks to the failure of EBS to nullify the predatory behaviour of some FX participants on its platform, where high-frequency traders (HFTs) have had an unfair advantage from a technology and market data perspective.

“Rather than advantage those firms with the biggest technological spend, the best algos, the closest distance to servers, and the most connections, we’re aiming to reduce those advantages and the possibility of gaining an economic advantage simply due to technological advantage,” says Marcus. “So for example a smaller trading entity in Australia has just as much ability to trade on this platform as a high frequency trader, who has hundreds of connections.”

Leading market makers have been looking to create an alternative venue for EBS for more than two years, and that has hit volumes traded on the platform. In April, EBS recorded its second-lowest volumes on record, 11% lower than the previous month and down by 26% year-on-year. It recently appointed a new Chief Executive Officer, Gil Mandelzis, and made other changes to senior management after the departure of former CEO, David Rutter, in March.

While HFTs are not excluded from trading on traFXpure, the protocols being put in place will prevent them from gaming the platform. According to a number of banks, some HFTs who traded on EBS had as many as 48 separate identifiers – in other words, 48 separate connections to EBS – making them more difficult to identify. Some banks might only have two. The identifiers are known as EBS AIs.

“We’re not blocking out HFTs,” adds Marcus. “It’s simply that we’ve got a matching logic that doesn’t necessarily advantage them.”

In a statement on Wednesday morning, Icap, the owner and operator of EBS, said: “Our focus remains on maintaining EBS’s position as the leader in electronic spot FX trading. Since March, we have been engaged in a wide-ranging dialogue with key customers and other market participants – including banks, buy-side customers, regulators and central banks – to ensure that EBS remains the trusted source of genuine executable liquidity and offers a level playing field for all market participants. Having a diverse customer base adds significant value and liquidity to the platform.”

Although traFXpure has gained the support of market heavyweights Deutsche, Barclays and UBS, it has not yet gained the support of Citi – which jumped two places to second in this year’s Euromoney FX volume survey – or HSBC and JPMorgan, which are ranked as the fifth and sixth largest FX banks by market volume, respectively.

Tradition expects to sign on more banks in the coming weeks, but is not yet in a position to disclose their identity.

“Deutsche Bank supports competition, innovation and transparency in the spot FX market,” says Zar Amrolia, global head of FX at the German bank. “Reductions in trading costs and the provision of low-cost market data will be of great benefit to our end-user clients. We look forward to supporting traFXpure as it works to achieve these aims for all market participants.”

Earlier this month, a consortium of banks launched FXSpotStream, which is streaming spot FX prices from its hosting site in New York through an API, does not charge brokerage fees to clients or liquidity-providing banks, and plans to go live in Europe early next month and then in Asia in the third quarter.

Liquidity providers on FXSpotStream’s API include six of the top 15 banks from this year’s Euromoney FX Survey: Bank of America Merrill Lynch; Citi; Commerzbank; Goldman Sachs; HSBC; and JPMorgan.

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