EBS has unveiled proposals for best practices relating to aggregation in FX markets, the EBS Certified Aggregation Partner Programme.
EBS has set out its approach in a paper along with a series of program and certification guidelines aimed at ensuring that market users achieve the very highest level of best execution and transparency. The firm says it believes that aggregation providers should operate as agents, rather than principals to the trade, to reduce the opportunities for potential conflicts of interest.
The paper adds that all sources of revenue earned by aggregation providers with respect to a customer’s trading must be fully disclosed to customer. While the customer is aware of the fees they pay directly to the aggregation provider, this may represent only a limited portion of the commercial interest obtained from the trade and significantly affect the prices the client sees or its relationship with its pricing providers.
It further calls for transparency and certainty that the prices a customer sees as ‘best prices’ should be based on the best prices available to the customer, namely prices/spreads available to the customer should not be affected by the aggregation provider’s existing brokerage arrangements with liquidity or credit providers for the aggregation provider’s own commercial interests and aggregation providers should purely provide aggregation services rather than trading themselves (directly or through a third party) on a newly available and improved price while making available a lesser ‘acceptable’ price to the customer.
The third major finding of the paper is that the sources of liquidity and credit provided and any potential conflict of interest should be fully disclosed to the customer.
EBS will continue a consultation process with customers and partners to ratify the proposed best practices and the Aggregation Partner Programme, after which aggregation providers will be certified under the program.
Once the process is complete, only certified EBS aggregation partners will have the ability to develop technology links to integrate EBS liquidity (either EBS Market or EBS Direct) into their aggregators, directly or indirectly, although the firm says there will be “certain accommodation for grandfathered solutions”.
EBS CEO Gil Mandelzis says that aggregation enhances the customer trading experience and can add value to their business, but that it needs to operate under fair and transparent rules that offer a standardised approach. “I think it is good for the industry to define exactly what we mean when we say what an ‘aggregator’ or a ‘platform’ is and what it fundamentally does.”
Mandelzis is unrepentant when it comes to fears that some providers may see the program as EBS oversight of independent businesses. “We are very proud of the EBS brand and what it means and if participants wish to include and use EBS liquidity to support their business we would like be able to know how it is used,” he explains. “Not by accessing their proprietary data or IP, more by the aggregator showing us they adhere to the best practices. If an aggregator does not adhere, they will not see and use EBS liquidity.”
Chris Purves global head FX e-trading at UBS, adds, “This topic of aggregators has not been widely discussed and looked at by the market as a whole and it is certainly an important one to address. We are pleased to see EBS taking an industry leading position on this important topic and look forward to supporting this initiative.”
The announcement has also received positive feedback from aggregation providers. Dr Richard Bentley, VP capital markets at Progress Apama, says, “As a provider of aggregation and smart execution solutions to the FX marketplace, we recognise the importance of providing customers with a true, up to date picture of market liquidity. We welcome the steps EBS has taken to define guidelines for aggregation and fully support the underlying principles of transparency and impartiality that these guidelines represent.”
James Sinclair, CEO of MarketFactory, adds: “An orderly market depends on transparent business rules and logic. This includes aggregators providing a true and accurate representation of liquidity. We are strong advocates of open and disclosed execution rules, as these proposals promote.”
Although EBS is taking a leading position on the issue, Mandelzis is keen to stress he sees this as an industry initiative. “This is about best practice and making the industry a better place. If this idea had been promoted elsewhere, we would have signed up to it,” he says. “We are still open to feedback, but of course we have consulted heavily with our partners prior to this announcement. If anything the desire has been for more stringent best practices.
“I think the industry should embrace this initiative because we believe these measures will promote a better and fairer market for all,” he adds.