EBS’s move is meant to remove advantages enjoyed by high-speed, high-frequency traders.
The Forex ECN wars are officially on! Just a few days after we reported the launch of Tradition’s new Forex ECN called ParFX, comes word that ICAP’s EBS is making a major change to the way it handles incoming orders. The change — having incoming orders batched and then executed in a random manner, instead of the traditional “FIFO” first-in first-out method — is meant to remove advantages that high-speed, high-volume, high frequency traders have in trading markets such as FX.
Indeed, as we reported when ParFX was first announced by Tradition (and backed by several leading global banks), many global liquidity-providing banks were unhappy with EBS and some of its rivals, as high-frequency traders were able to take advantage of both them and other participants on those platforms. One of the changes EBS made was to go to half-pip pricing from decimal pricing. Now it is finally getting to the root of the problem, by going to random order execution.
CNBC today reported EBS CEO Gil Mandelzis as saying “It is a technology arms race to the bottom, and a huge tax on the industry, since people are having to make significant investments in speed without any connection to their trading strategy. Speed has little to do with why many participants come to our markets. These are serious players who come to the market to exchange risk; they do not come to race.”
The issue of advantages held by high frequency traders versus “regular folk”, and even versus big financial institutions, is a hot one right now on Wall Street. We reported recently how an ex Thomson Reuters employee is suing TRI surrounding certain trading advantages he claims are given to “ultra-low-latency” subscribers. And the problem is not confined to FX — equity markets regulatory bodies and brokers are trying to figure out ways to deal with this issue as well.
Stay tuned to LeapRate as this story continues to unfold…