The changes made to the EBS market between 2004 and 2006 were pretty radical. How did these come about?
They were actually much more progressive than they might appear externally in that a considerable amount of consultation with the EBS owner banks on matters such as non-bank participation and API trading (which we refer to as Ai) was going on behind the scenes since 2003. There was also an extended trial of Ai for banks only during 2004 and EBS Prime was originally introduced just for smaller and regional banks. The key point was that owner and participating banks should feel entirely comfortable with the changes being proposed before the introduction of non-banks to Ai via EBS Prime in 2005.
What is the current constitution of EBS's participant demographic?
Ai has been a growing percentage of our volumes and now accounts for about 50% of our activity. While a significant proportion of that is attributable to buyside non-bank participants, it has been interesting to observe how banks (who account for some 60% of our total volume) already make extensive use of Ai in various areas.
Some of this activity is what I would refer to as aggregation, where although a trader at a bank gains access to different liquidity pools, the activity is still essentially manually driven. Some bank Ai activity is e-commerce risk management, where single bank portals use EBS to offset a residual risk position. Finally, in common with non-banks, some banks also run proprietary trading models.
That sounds fairly close to the diverse order book that many trading venues aspire to?
Well, we don't have any retail or non-professional participation, but I would say that we have an unusually diverse mix on the platform. That ranges from high-frequency Ai proprietary trading, to e-commerce risk management, to manual trading. The mix is also unusual in that we have what I refer to as a very long 'tail' of banks around the world that don't necessarily execute huge volumes, but in aggregate still represent real and natural interest. For example, we have ten banks in Poland who trade the majors on EBS on a daily basis, which adds further diversity to the liquidity mix.
The intriguing thing is that while Ai activity has grown, we haven't lost any manual key stations; we still had some 2800 active key stations in April. The bank demographic has obviously changed significantly in recent years due to mergers among some European banks and events such as the demise of Lehman. At the same time, new banks from Eastern Europe, Russia and the Middle East have joined, which has considerably extended our footprint as well as maintained stable trading volumes (see Figure 1).