EBS sets sights on running central system for FX fix

By Patrick Graham

LONDON, April 15 (Reuters) - Currency trading platform EBShas been approached by major banks to provide a computerisedsystem removing much of the human element behind a scandal overthe manipulation of currency benchmarks by lenders, a senior EBSmanager said.

Such a facility has been discussed for some time as a way ofreducing the risk of sensitive client order information seepingout and increasing the scope for wrongdoing in the trades thatset benchmark exchange rates used to value trillions of dollarsof investments daily.

EBS, one of the main venues for banks and other largefinancial institutions to trade currencies, launched its eFixsolution last year to help banks to match off their orders tobuy and sell currencies at the daily "fixings".

That stops short of the outright central facility looked atby the Financial Stability Board (FSB) last year to take in, netoff and process orders anonymously and independently of the banktrading desks at the centre of a two-year long row over marketmanipulation.

But it might give EBS the critical mass to launch what couldbecome the main venue for such activity.

"EBS Market is well positioned to play the role of a centralutility for the execution of benchmarks globally," DarrylHooker, head of EBS Market, the platform's main product suite, told Reuters.

"We've been approached by a number of the major banks withregard to providing a netting facility to our eFix solution."

The FSB's final recommendations last year abandoned the ideaof ordering the creation of a fixing utility, saying that it sawthe potential for the market to generate such a solution withoutofficial intervention.

A number of financial technology companies and exchangeshave expressed interest, though the task is complicated by theneed to get enough banks on board to ensure sufficient demand onboth sides to match off most buy and sell orders.

Another problem is how to deal with residuals: situationswhere a large number of sell orders are not matched on a givenday by equivalent buying interest, leaving the facility or theasset managers behind the orders holding the risk of a failureto execute or of execution at worse rates.

Hooker was careful not to be drawn on the details of how EBSwould deal with this issue, but it is generally assumed that itwould involve at least one large bank standing behind thefacility to absorb the risk.

EBS, which has never been accused of any wrongdoing in theforeign-exchange scandal, is wholly-owned by inter-dealer brokerICAP. The other major currency trading platforms areprovided by Thomson Reuters. (Editing by David Goodman)