Two and a half years on from acquiring Molten Markets, EBS is beginning to claim some tangible traction amongst the asset management community.
When Molten Markets, founded in 2012 by State Street alumni, was acquired by then-EBS-BrokerTec in 2015, there was a clear logic to both sides of the deal. For EBS, the move was part of a broader strategy to diversify the brokerage’s existing client base, while for Molten Markets being part of a larger, more established company with superior financial resources made its platform a more attractive proposition for the asset managers that it was targeting.
However, while the logic was clear from the start, progress in getting asset managers live on the platform, now branded EBS Institutional (EBSI), has been slow. To be fair, this is hardly surprising given that the asset manager community is a notoriously long sell-cycle, something that EBS readily accepted at the time of the acquisition.
Part of the reason why this sell cycle is so long is because switching what is essentially a core operational platform is such a massive internal lift for asset managers that they are reluctant to do it unless there is a truly compelling business case for doing so.
“It can’t just be an incremental improvement, there has to be a quantum leap of improvement before they will even consider the pain of changing their system,” explains Simon Wilson-Taylor, one of the co-founders of Molten Markets and now the head of EBSI.
But now, claims Wilson-Taylor, EBSI is beginning to convince asset managers that its platform represents this quantum leap forward. The firm now has two asset managers live on the platform with 14 more running in various stages of onboarding, with most doing a full parallel implementation alongside their existing platforms and due to go live over the course of the next year.
Key to the pitch from EBSI is that asset manager requirements when trading FX have evolved significantly since rival platforms like FXConnect and Fxall were launched in the 1996 and 2001 respectively.
“Where the demand lies today is more in performance requirements rather than operational requirements,” says Wilson-Taylor. “People need to be able to manage their FX execution very differently today than they did twenty years ago, partly for regulatory reasons and partly because of what’s happened at the banks. The banks are no longer acting as full blown risk transfer intermediaries in the same way that they used to, and that means that asset managers have to take much more responsibility for managing the risk in their FX portfolio rather than simply doing risk transfer trades. This completely transforms their requirement for technology.”
While managing more risk themselves requires much more work on the operational side of the business, Wilson-Taylor says that traders at asset managers have no interest in these operational issues, they just need the trading platform to seamlessly meet all of these requirements in the background. He adds that this is where EBSI differentiates itself.
“Were not just doing all of that, but also managing their access to algos, to our own time slicers, enabling them to do voice trades or a voice element of a trade where they need to or offering them CLOBs when they want to get to those,” he adds.
Another key trend, observes Jim Iorio, global head of sales and head of FX Americas at NEX Markets, is that there is a growing demand amongst these firms for more sophisticated tools for demonstrating that they achieved best execution.
“The demands are so much higher now and the FX market has changed so that now there are lots of pockets of liquidity and few true FX “supermarkets”. You have players such as regional banks or non-bank market makers who have competitive advantages in certain currencies or products, and because the EBSI platform is really data driven we can help firms ascertain where the best liquidity is for the particular execution style that they’re trying to use.”
Both Iorio and Wilson-Taylor stress the centrality of data to the EBSI platform. This is why from the start it utilised a high-performance historical time-series columnar database from KX called kdb+ to allow for sub-millisecond calculations in the platform and for the recording of every tick and every single piece of data on the platform.
Wilson-Taylor says that asset managers have two distinct requirements for this data, the first being that they need to be able show clients and regulators they have some form of standardised methodology for trading that is based off data and that the data shows they got the best possible execution available.
Although he emphasises that this first requirement is a very important one, given that there are already independent third-party TCA providers in the market, Wilson-Taylor says that it is not the main focus for EBSI. Instead, the platform is more focused on using the data to help asset managers improve trading performance.
“So for the asset manager it’s about: how can they do better? Which method worked best, which algo worked best, which liquidity provider worked best, etc? And there’s a subsidiary part of this, which is: how do I limit my market impact? What’s my footprint in the market? We’re getting increasingly good at not only providing data on that, but also from EBS’ centralised resources providing input into market impact minimisation,” says Wilson-Taylor.
In terms of developing the platform further, the next step is to enable liquidity providers to better use data from the platform to improve their performance, so that they can better understand why they miss trades and when they need to improve their pricing. Then from there the goal, which Wilson-Taylor describes as the “holy grail”, is to begin leveraging the various other products and services offered by Nex Group.
“That’s one of the key reasons why I wanted ICAP – now NEX – to buy Molten Markets, because it is in so many ways the heart of the FX market for liquidity and data, and that’s such an important piece of the puzzle for this client base,” he says.