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ICAP, Darryl Hooker

ICAP’s EBS Market & EBS Direct proving to be effective platform for buy-side FX traders


One of the most prominent features of the post-financial crisis was the commitment through central bank intervention, particularly in the US, the UK and Europe, to stabilise the markets. Volatility was dampened and FX trading volumes contracted significantly.

Recognising this, ICAP, the London-based markets operator and one of the industry’s leading providers of post-trade risk mitigation and information services, made a concerted effort to spread its wings.
EBS Market, ICAP’s flagship electronic platform supporting spot FX currencies and precious metals, took the initiative to expand beyond its core currencies and over the last three years has significantly grown its revenues in three areas: NDFs, the CNH (offshore Chinese renminbi) and the Russian rouble (RUB).
“These have been three very strong stories for us and we’ve seen significant growth in all three areas. That’s in support of what we’re traditionally known for, which is the euro, yen and Swiss franc. When the markets do return and interest rates rise, even though we may see total volumes fall off in quieter times, we are now in a position to take even bigger steps when they recover,” explains Darryl Hooker (pictured), Head of EBS Market.
EBS Market has been built by FX traders for FX traders and has become one of the most trusted sources of reliable, executable liquidity across more than 138 cross-currencies (including spot, NDF, NDS and metals). The platform is used for anonymous price discovery and execution by global trading organisations including many hedge funds.
Typically, hedge fund customers access EBS Market through the credit lines of their EBS Prime Bank using either the EBS Workstation, EBS Global Access, the company’s browser-based solution via a high-speed internet connection, or its API based trading network, EBS Ai, to give them access to optimum liquidity.  
The CNH has been a real success story for EBS Market and opened a door to hedge funds and other institutional traders keen to trade the Chinese currency in its offshore form. It now has a dedicated team of five people in Hong Kong, Singapore, London and New York. In the first three months of 2014, trading volumes increased three-fold on Q4 2013, helped by the depreciation of the currency.
“We saw the volatility and trading volumes move up dramatically. Another important development was that we were able to use the EBS Prime model to give access to hedge funds and to banks who were not sufficiently credit enabled in their own right to trade CNH through a Prime Bank on the EBS Market platform. 
“Many of them wanted an education from us in terms of how we saw CNH growth, how it was placed geographically in terms of customer base and participation. We built up a lot of intelligence over the first quarter of 2014. We’ve become a source of knowledge, and we like to think, a school of excellence on the CNH. We now enjoy at least 50 per cent of the e-traded market in CNH,” confirms Hooker.
EBS Market now offers trading opportunities in nine CNH pairs.
Non-deliverable forwards (NDFs) have been another area of growth for EBS Market with Hooker confirming a solid upward trend over the last three years. One of its most popular contracts has been the INR one-month traded both on exchange and OTC and this has led to increased participation in other currencies.
“We’ve seen a lot more uptake in the Korean won and the Malaysian ringgit; these have built up noticeably to become a core part of our NDF business. Whereas the INR accounted for roughly 50 per cent of our total volume, now it’s around a third, though our total NDF business has tripled year on year.” says Hooker, confirming that Latin America is the next major area of focus to expand the NDF business.
Amongst a steady pipeline of product innovations EBS Market successfully introduced ‘iceberg’ orders in 2014. This is where traders show a small amount of the contract and keep a larger amount undisclosed in real-time to the market. “These have been popular for all of our most liquid products (e.g. the yen, the euro) including the CNH and INR. They leave less of a footprint when executing large positions,” observes Hooker.
“One of our most transformative innovations this year has been the launch of ‘Mid-PD’. This is basically a pip discretion product that counterparties can use when you get down to the tightest incremental value on a currency pair. Let’s say we’re sitting at 50/50.5, on the EUR:USD and both sides have flagged it for Mid-PD. The bid and offer would meet automatically at 50.25. In effect, what this does is bring a new dark price point to a lit pool.

“There are periods of the day, for the euro in particular, when for 30 or 40 per cent of time we are at our tightest pip granularity. Mid-PD gives us a huge opportunity to execute those orders more effectively without risk of losing them to other platforms,” confirms Hooker.
For those traders not wishing to execute orders anonymously they have the option to use EBS Direct, which launched last year. EBS Direct is a fully disclosed and direct relationship-based offering that allows liquidity providers to stream tailored prices to liquidity consumers.
“What we’ve done is leverage the existing EBS Market infrastructure, global footprint of EBS Workstation users and API connections to provide major liquidity providers with access to the robust and trusted global EBS network to provide liquidity to their customers. Unlike a central limit order book, it is liquidity provision through a trusted infrastructure. We currently have 18 liquidity providers and there are 12 more in the pipeline,” comments Jeff Ward, Head of EBS Direct.
This is potentially advantageous to hedge funds. They may be trading, for example, with 10 different liquidity providing banks. With EBS Direct, the hedge fund can trade more effectively using a single connection to get a single aggregated view of the market that all 10 liquidity providers are making. This enables the hedge fund – or any other customer of EBS Direct – to execute orders throughout the day with the most competitively priced counterparty.
“Within a single hedge fund there might be multiple portfolio managers with different needs. One might want to trade passively on EBS Market, while another might want to offload risk for certain other types of trades and EBS Direct is a perfect fit for that. Combining the two platforms together is a compelling proposition in our view.
“We’ve seen good take up from hedge funds who might have previously traded on other platforms that might have been more expensive. We don’t charge customers who use EBS Direct, we charge the liquidity providers very competitive and transparent brokerage rates, which coupled with our robust offering, and global distribution is turning into a winning combination,” confirms Ward.
To illustrate the growth of trading volumes on EBS Direct, initial ADV was around USD100mn. According to a September trading statement, ADV had grown to USD19bn with an intra-month peak of USD25bn.
“With EBS Direct we have the advantage of being a disruptive player. Some of the multi-dealer platforms have been around for 10 or 15 years now and probably aren’t in a position to be as efficient or cost effective. We operate in a completely transparent fashion. The way we run EBS Direct (and EBS Market) is fair, orderly and consistent. Both hedge funds and banks expect that and rely on that,” concludes Ward.

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