May 19, 2015 / 1:35 PM / 4 years ago

EBS on track to test new mechanism for forex fixings

LONDON, May 19 (Reuters) - Currency platform EBS is to start testing a computerised system this year that regulators see as one way of preventing manipulation of foreign currency benchmarks, a senior manager at the company said on Tuesday.

Financial regulators have been looking at how to improve transparency in the forex markets since a benchmark rigging scandal broke two years ago.

The Financial Stability Board, set up by the Group of 20 countries, originally considered creating a new central utility that would take in and process all orders for the currency fixes that form the benchmarks. But this idea was abandoned in favour of leaving it to market participants to create a mechanism.

Darryl Hooker, head of EBS Market, part of broker ICAP, said the big technical headache that has hampered the creation of such a system could be resolved by an auction process or something similar around the daily currency market fixes.

This would help to deal with large left over orders to buy or sell currencies, a situation which encouraged some traders to game the system.

Currency benchmark fixings are still considered vital by many fund investors despite the forex rigging scandal. Investors use the benchmarks to reduce the currency risk in their daily trades. The most common benchmark fix for the major currencies takes place in London at 1600 local time.

Hooker said EBS had the broad backing of five of the industry committees run by major central banks for the work it had done so far on creating a central utility.

“They are all very much aligned with what we are doing and that we are addressing the recommendations the FSB made last year,” Hooker said. He said they hoped to start testing it by the end of the year.

Senior central bank officials have told Reuters that there was interest at the G20 level in pushing ahead with such a system as a way of excluding traders from the process of fixings and preventing wrongdoing in the future.

“When we get to 2 minutes before the calculation window (for the fix), there will be an auction or some similar mechanism,” Hooker said.

EBS had said previously that it was working on building such a system on the back of its eFix product, which helps banks to find and net-off buy and sell orders before the fixing sessions.

EBS said on Monday that eFix volumes had jumped 160 percent in the last year.

If the company’s system becomes the central location for such forex business this might help to bolster its position in the forex market after a few difficult years where volumes on its trading platform have been under pressure from smaller rivals and a drop off in market volatility.

Its major competitors across the range of multi-dealer and interbank platforms in the FX world include Reuters News’ parent company Thomson Reuters, BATS platform Hotspot and Germany’s 360T. (Editing by Jane Merriman)

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