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EBS crashes raise questions

All electronic trading systems crash at some point, so when EBS went down for just over two hours on Thursday, March 5, I didn’t give it too much attention. After all, FX is not like other markets where activity is concentrated on a single venue. There’s plenty of choice in FX, I thought. Trading elsewhere should be relatively simple.

However, while other platforms did see an increase in volumes, the market’s reliance on EBS for certain currency pairs became apparent. Some banks, notably Deutsche, even stopped streaming EUR/USD and USD/JPY rates, while most widened their spreads.

This should have proved some comfort to Icap as it fended off no doubt numerous phone calls from its clients asking what was going on. Many so-called market makers – including various machines – can only quote a price when they know what it is on EBS. And the broker will also be fully aware that liquidity is notoriously hard to shift. But it can happen. When it does, it’s usually because other venues offer a combination of better technology, greater reliability and lower dealing costs.

Icap has made a great deal of fuss about the upgrades it has made to EBS since it bought it; the platform remains one of the cheapest non-bank venues for big volume players to trade on. However, another brief outage on Monday just after the London session will have caused more concern, as will the fact that the system was then down on Tuesday and Wednesday for maintenance. The fact that Icap did not wait for the weekend only served to add to the market buzz that EBS suffers from serious technological issues.

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