EBS, the Icap-owned FX exchange, is refining its existing brokerage offerings to second-tier and third-tier banks with the launch of new last-look platform EBS Direct.
The platform will enable the smaller banks to connect directly with flow from large providers using what is known as relationship-based, disclosed, last-look liquidity.
This means that the liquidity provider connects directly with a customer that is known to it before a trade occurs, and it gives the liquidity provider the right to refuse the trade pre-execution.
EBS chief executive Gil Mandelzis says EBS Direct is a step-change from EBS’s traditional model of an anonymous, no-last-look broking platform used primarily by large banks transacting with one another.
"The reality is our liquidity providers want to provide liquidity not just to anonymous pools of liquidity but to disclosed clients as well," Mandelzis says.
EBS Direct says it has agreed to connect more than 100 second-tier and third-tier bank customers to receive pricing on the platform, and the broker will add more customers soon, says Mandelzis.
EBS Direct will be supplied with FX last-look liquidity by at least the 19 bank providers named in December: ANZ, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Bank of America Merrill Lynch, Citi, Commerzbank, Credit Suisse, Goldman Sachs, HSBC, Jefferies Bache, JPMorgan, Morgan Stanley, Nomura, Nordea, RBS, Société Générale, Standard Chartered and UBS.
The platform will initially offer only spot FX trading across all the leading currency pairs, but EBS Direct will look to expand into non-deliverable forwards and other products, possibly FX options.
Known liquidity on EBS Direct will give the second-tier and third-tier banks tighter pricing using a portal specifically designed for them, and the pricing on the platform will be shown in one pip and 10th pip increments, with a minimum trade size of $100,000.
Mandelzis says EBS Direct will eventually roll out to "any client segment", including institutional clients.
Jeff Ward, EBS’s global head of FX sales, who will run EBS Direct, says there are also other, unnamed, banks that are providing EBS Direct with liquidity to the platform in addition to the banks announced last month. Mandelzis adds that EBS is set to recruit more bank flow providers to EBS Direct.
However, for EBS Direct to succeed, it will have to steal second-tier and third-tier bank brokerage business away from competitors, such as FXall, Currenex, 360T and Hotspot FX, by offering lower fees, says a senior FX market player.
Mandelzis says he is confident EBS Direct will find a comfortable niche among electronic communication network competitors through the provision of lower-cost services and a technology offering that can easily be expanded.
"There are hundreds of millions of dollars that are being spent by the industry on completely redundant infrastructure and redundant services," says Mandelzis. "People are spending way too much money and getting way too little value."