ICAP’s new technology will be packaged as an EBS offering under the name eFix Matching
As reported yesterday in the Wall Street Journal, brokerage giant ICAP PLC is seeking to transform its London-based foreign-exchange voice brokers into active promoters of its electronic-trading platform. This is the newest move by a financial firm to cut humans out of direct roles in buying and selling currencies. ICAP told clients Tuesday that it’s rolling out new technology, packaged as an EBS offering under the name eFix Matching, aimed at enticing banks and other institutions to channel more of their currency trades to ICAP’s electronic EBS Market.
ICAP wants its clients to see eFix as an alternative to how many clients currently are trading around the major so-called “fixes,” the processes pegged to set times such as 4 p.m. in London, which establish global exchange-rate benchmarks based on a flurry of transactions in a narrow window of time. These benchmarks have come under scrutiny from regulators worldwide that are probing whether traders sought to manipulate rates by collusion or other means.
With its latest move, ICAP is betting that by further pushing the trend of currencies trading to electronic platforms, and away from manual transactions, it can draw back some of the trading volume its EBS platform has lost in recent years to banks’ internal foreign-exchange platforms and other trading venues. As the market has shifted, EBS average daily volumes have declined from a peak of more than $270 billion in September 2008, to around mid to high $80s billion average daily volume, as reported in monthly figures this year. Last week we reported ICAP’s most recent FX volumes for March where volume on EBS ticked up slightly from February up 6% to $88.4bn but off 27% YOY.
(Falling Volume on EBS Shown Above)
ICAP executives say banks, asset managers and companies pivotal to the $5.3-trillion-a-day global currencies market are a long way from adopting a replacement for popular benchmark fixes, which many companies and fund managers require to price assets for global trade. In backing the eFix push, though, ICAP is asking its phone-based currencies brokers to cut themselves largely out of directly handling trades in one of the last bastions where they retain a prominent foothold. ICAP management is still working a modern commission structure when brokers will assist in routing orders electronically.
Instead of taking calls from banks and trying to physically match their buy or sell order with other firms in the market, voice brokers at ICAP, who earn commissions based on volumes of trades they handle, will be asked to encourage customers to route their foreign-exchange trades to EBS, where trades are generally cheaper for clients to execute. Interdealer brokers and banks have turned increasingly to electronic trading in currencies and other markets. More than 60% of all trading in the global foreign-exchange market is done electronically, and the number is climbing, according to a 2013 survey by consultancy Aite Group. ICAP’s chief executive,Michael Spencer, has described the company’s financial-market middleman role as increasingly electronic.