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More than a year after CEO change, EBS plays catch-up in FX

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 18 (Reuters) - Electronic trading platform EBS is trying to regain its mojo.

Once the largest currency venue for major global banks, EBS has seen volumes drop sharply in recent years as major Wall Street banks have increasingly handled trading in-house.

The company's volumes are down sharply, with a 27 percent year-over-year decline as of September, and are less than one-third of a peak hit in 2008.

To head off more declines, EBS is betting it can attract mid-sized banks they see as underserved in this market.

The company's new direct dealing platform, called EBS Direct, is primarily aimed at smaller and regional banks, although it has signed up other non-financial clients as well.

"The direct dealing segment of the industry is growing in a fragmented fashion and there is no dominant player," Gil Mandelzis, chief executive officer at EBS, told Thomson Reuters.

"There's an opportunity here for EBS to become one of the biggest players, if not the biggest in the market."

These smaller and regional banks represent a sizable chunk of the forex market - about 24 percent, or about $1.3 trillion of the $5.3 trillion global trading volume per day, according to the 2013 estimates from the Bank for International Settlements.

EBS announced EBS Direct in November last year and launched a pilot program in April. It's a separate FX venue focused on providing direct, fully disclosed prices to so-called Tier-2 and Tier-3 banks. The latest version will go live before year-end and will run alongside the main EBS platform.

Direct dealing, however, is nothing new. Thomson Reuters-owned FXall, aimed at the asset management community, and Frankfurt-based 360T, geared toward corporations, offer similar services and have been around for about 10 years.

The initiative was planned for a number of years at EBS, according to an industry source familiar with the company, but was derailed because of management changes last year, when Mandelzis took over as CEO. That shake-up came after clients balked at EBS's decision to start quoting many currency pairs out to five decimal places, which bank clients said favored computerized traders and disrupted trading for others.

The company is owned by London-based interdealer broker ICAP and competes with Thomson Reuters in the FX dealing business.


Interbank venues have struggled to respond to the changing structure of the forex market, with major banks handling client risk themselves instead of hedging through trading platforms. BIS data shows that interbank transactions accounted for just 39 percent of total global forex trading as of April 2013, down from nearly 60 percent in 2001.

EBS and other anonymous exchanges, where buyers and sellers are not disclosed, were losing ground among regional banks, which were migrating to both new and existing direct dealing platforms that reveal the identity of buyers and sellers. But "now that we have EBS Direct, many of these clients are migrating back to EBS," Mandelzis said.

EBS' average daily trading volume rose slightly in September this year to $81.2 billion, after falling to $78.7 billion in August, the lowest since ICAP bought the firm in 2006. In September 2008, EBS' volume hit a high of $274 billion.

Harpal Sandhu, chief executive officer of Integral Development Corp in Palo Alto, California, thinks EBS is not flexible enough to keep up with the market's changes.

Integral runs FX Grid, a global trading network connecting active traders with major sources of FX liquidity. It also develops the technology for other FX execution platforms and has been in the direct dealing business the last eight years.

Sandhu said matching engines like EBS are attempting to build niche products to meet the needs of a particular segment. "It's like saying: 'I'll come up with a better mousetrap than the other for just that part of the market,'" he said.

But Mandelzis said the company does not have to differentiate to gain significant share in the market.

"The reality is that over 300 clients have signed up for EBS Direct before we had the product, which already makes us one of the largest players in the market."

EBS should have an additional 200 clients by next year, and has signed up more than 30 liquidity providers, Mandelzis said.

Thomson Reuters, which also runs an interbank system, has also seen volumes decline over the years, but not as much as EBS, as it specializes in more currencies. It hit highs of nearly $180 billion in 2011, declining to an average of $110 billion per day last month. It became the largest FX platform by the end of 2012 after its acquisition of FXall.

Financial services consulting firm Aite Group, in its September 2013 report on the FX market, said EBS is still considered the premier venue for spot trading, but noted that the firm's underlying technology in terms of the speed in executing a trade "is considered slow by today's standards."

Mandelzis doesn't deny that there are much faster execution venues in the market than EBS.

"We do not aspire to be the fastest. We are in the business of providing the most reliable market and solutions for genuine liquidity," Mandelzis said. "If traders are looking to move from the millisecond world to the microsecond world, then EBS is not necessarily the best place for them."