Trading: It’s EBS, but not as we know it
Icap is determined to boost the position of its spot trading platform, but mutually owned venues are at a disadvantage.
"What is important is that we make access convenient and integrate the business with the trader’s workflow"
The history of EBS is like a truncated version of the story of regulated stock exchanges. Set up by market participants to facilitate their own trading needs, it performed exactly as planned for a time. However, as the market evolved, EBS, which went live as recently as 1993, found it hard to react. The reasons for this are complex but as a 2006 academic paper on equity markets shows, mutually owned trading venues do sometimes find it difficult to respond to competition that did not exist when they were created (Baris Serifsoy & Marcel Tyrell, Investment behaviour of stock exchanges and the rationale for demutualization – theory and empirical evidence, August 14 2006, Goethe University Frankfurt).
"Exchanges organized as mutuals are particularly ill-suited compared to trading venues owned by outside investors, when investments result in potential rents for only a few of their members," the paper says. It adds: "Our model shows that a mutual exchange, facing competition from a for-profit, outsider-owned platform, can only survive by adopting a similar governance structure."