• EBS Live Ultra pumps out price updates five times faster
  • Executive says upgrade should make market ‘healthier’

ICAP Plc, which has seen its share of currency trading dwindle in recent years, is rolling out an unprecedented plan to revive liquidity in its electronic market.

The venue will feature a price feed called EBS Live Ultra that updates five times as often -- every 20 milliseconds -- as the old one. But it comes with a catch, according to documents obtained by Bloomberg: at least 40 percent of the time, customers of the $50,000-per-month service must passively provide bids and offers, generally viewed as a less aggressive form of buying and selling. That trading must amount to $200 million or more a day.

The approach is unusual, because exchanges typically go out of their way to avoid the appearance that one set of customers has more information than another. ICAP says it’s not about giving anyone an unfair advantage, it’s just using its valuable market data as an incentive to deepen liquidity. The rule change also discourages banks from using the feed only to run their own pools.

“We’re trying to create a healthier ecosystem with these obligations,” Tim Cartledge, chief strategy officer at ICAP’s EBS Brokertec division, said during an interview.

Cut in Half

While EBS volumes in June were less than half what they were eight years ago, the venue is still seen as the authority on prices for certain foreign-exchange pairs. That makes the price feed a must-have for trading firms. Banks, meanwhile, have sought to muscle in on electronic trading with their own trading platforms.

Interdealer brokers like ICAP saw their share of trading drop to 39 percent in 2013 from at least as high as 63 percent in the late 1990s, as major banks conduct more business internally, according to the Bank for International Settlements.

Bloomberg LP, the parent company of Bloomberg News, also runs a currency-trading platform.

The upgrade of the ICAP system comes amid heightened scrutiny of the industry, which amounts to a $5.3-trillion-a-day business. Several banks have pleaded guilty to rigging benchmarks, and more recently regulators have been peering into a common practice known as “last look,” which gives market makers a chance to back of out trades.

For a review of rigged benchmarks, click here.

The $200 million threshold for the new service is low for EBS Live customers, and the growing tendency for users to trade on their own dark venues that keep data private is bad for price discovery, Cartledge said.

‘More Liquidity’

“If you’ve got access to the fastest data, which allows you to run a profitable strategy trading against the rates other participants make, then you have an obligation to make some rates back to those participants,” he said. “If you’re a relatively unsophisticated user, you will have more to trade against. There will be more liquidity available for the regular user of the platform.”

Another risk to the new price feed is that it could be seen as adding complexity to the market while putting restrictions on an expensive service. At $50,000 per month, the new data service costs the same as the old one, according to people familiar with the details who asked not to be named, citing confidentiality.

Computer-driven traders emphasize speed, so EBS Live Ultra would seem perfect for them. But when asked about the new EBS feed, Bill Harts, the head of an advocacy group representing automated traders, said, “Markets should promote fair and equal access.” Harts, chief executive officer of Modern Markets Initiative, added: “A level playing field, without unnecessary barriers to entry, allows all investors to compete effectively.”

And there’s the question of fairness. ICAP has to balance its objectives against the potential that the market could be seen as favoring some firms over others.

“It does create a two-tiered market, but they’re trying to balance that with these liquidity provisions,” said Craig Pirrong, a finance professor at the University of Houston.

ICAP points out that the new data service isn’t delayed; it just doesn’t update as often.

Anyone can qualify for EBS Live Ultra by “changing their behavior for the good of the community rather than just having the deepest pocket,” ICAP’s Cartledge said.

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