FX Markets Best Banks Awards 2020: Best broker for NDFs and Best broker for spot – EBS


With the events of 2020 putting the FX market through opposing poles of extreme volatility, EBS has stood out from the crowd, offering clients the abliity to execute trades efficiently under unprecedented and extremely challenging circumstances

Jeff Ward, EBS
Jeff Ward, EBS

If ever there was a year in which the foundations of the FX market were tested, 2020 would certainly rank at the top. The gyrations in volatility and the extreme stress FX markets were placed under during the year truly tested how well the FX industry functions.

“The big story from 2020 was really about the proper functioning of markets,” points out Jeff Ward, the global head of EBS, part of CME Group. “2020 was such an unusual year. We saw the full gamut of market activity, starting with multi-decade extreme low volatility in Group of 10 pairs to extreme volatility, back down to very low volatility and again to increasing volatility.

“This is when the proper functioning of the marketplace is fundamental, when the importance of a platform
like EBS comes onto its own, both
from a price discovery and execution and risk perspective.”

What matters most for traders in these times of stress is the ability to execute trades in the most efficient way possible under challenging circumstances. During the most extreme levels of volatility in 2020, the primary objective for many market participants was to find the best outlets to trade real risk, and place natural interest in the market as they sought to reposition and rebalance their trading positions, says Ward.

Since its creation in 1990, EBS has become the primary spot FX trading venue for the interbank market in many of the world’s major currency pairs, including EUR/USD, USD/JPY, USD/CHF, EUR/CHF, USD/RUB and, more recently, USD/CNH, the offshore variant of the renminbi.  

Trading on EBS’s central limit order book (Clob) saw a significant uptick during the periods of high volatility in 2020, a testament to its vital function in the FX market.

“During the extreme disruption in March, EBS Clob numbers were relatively strong as market participants were pulled into the primary market to ensure they could execute their interests,” says Ward. “To me, that demonstrated that the value of a primary marketplace like EBS’s Clob is really important in times of stress within the market. The market tends to go back to a primary venue like EBS to trade because it’s a market of natural interest with no last look.”

Beyond pressure exerted on market participants in search of liquidity during bouts of high volatility, the successive lockdowns in many parts of the world put additional strain on banks as they sought to enable their traders to remotely access liquidity venues in a secure manner as many were forced to work from home. Consequently, EBS, which was voted best broker for spot and best broker for NDFs at the FX Markets 2020 Best Banks Awards, received hundreds of requests for internet connectivity to their market’s platform during the year.

With many traders working remotely, the use of mobile apps on EBS also increased in 2020, but the interest in this technology was more to access market data rather than for actual trading purposes. “Bank traders are not typically the ones that will be looking to trade on mobile apps, or even be allowed, from a compliance perspective, to execute on a mobile app,” explains Ward. “But, for access to information, we definitely saw big demand for access to market data and market information and not so much on the trading side. It’s a reflection of our client base.”

While spot volumes were flaring up on EBS because of pandemic-induced volatility, a flurry of non-deliverable forward (NDF) trading was also taking place on EBS. NDF volumes traded on EBS reached an all-time high in March.

“Overall, I’d say NDF volumes are slightly up year on year but, generally, it was a bit of a roller-coaster ride with significant activity in the first quarter, driven by March volumes around Covid‑19. Then periods of low volatility for the next few quarters followed by a normalisation of trading interest into Q4.”

But, beyond the volume surge in March, a significant amount of NDF order flow moved onto EBS’s Clob during 2020, as liquidity provision in the one-month tenor for currencies such as the Korean won and the Indian rupee matured.

The market for one-month Asian NDFs has now developed to the point where market participants are now comfortable expressing their risk and interest positions on an offshore and electronic basis, and certainly larger banks have automated their pricing for many of the Asian pairs, Ward explains.

And, while larger ticket sizes in one-month Asian NDFs may still execute via voice brokers, EBS is has focused on changes that allow both smaller and larger trades to execute on EBS.

“For larger ticket sizes in the one-month, we are helping clients find good ways to offset larger orders,” explains Ward. “Last year we introduced an order type called Aggress Full Size Only, which allows clients to check if there is sufficient hidden and shown liquidity on the EBS orderbook to fill that trade, which allows traders to offset greater amounts of risk in a single order.”

Outside of the Asian one-month tenor, interdealer NDF pricing remains less electronic: “Outside of the straight one-month Asian NDF, it’s harder to price a 20-day NDF on a streaming automated basis, which is part of what I would call the bespoke – or less liquid – parts of the curve. That’s still more of a request for quotation (RFQ)-type of world. Banks will provide pricing to their clients there and then offset the risk in the one-month on EBS.”

Latin American NDFs are more of a mixed bag, but much of the trading in the instrument is voice-driven, explains Ward. Compared with Asian currencies – which are actively traded by large international banks – in Latin America local banks remain important participants in those pairs. Onshore price discovery thus continues to predominate, and there is less trading conducted electronically on a Clob.

Even in Brazil, the largest currency market in South America, onshore futures liquidity is plentiful, but offshore Brazilian real NDF liquidity remains largely voice-traded. 

 “Some smaller Latin American pairs are less active,” says Ward, “and they trade mainly during the North American time zones as well and so are less global.”

Nevertheless, Ward expects Latin American pairs to mature over the next few years and hints of this may already be occurring. He points to the 300% increase in  Latin America NDF trading on EBS in 2020 versus 2019.

“There are signs that Latin American pairs may follow a similar evolution to the Asian currency pairs,” says Ward. “I think it’s just a matter of time as the benefits of having an electronic Clob for Latin America pairs bring benefits to dealers and their clients in terms more efficient execution and price discovery.”

As for the future of the wider NDF trading landscape, Ward believes NDFs will follow a similar path to other instruments, such as spot, and continue to evolve towards greater electronic trading. 

“When liquidity reaches a certain point, NDFs will follow the same evolution seen in spot FX for major and less liquid pairs. We’ll see concentration of liquidity on Clobs and we’ll also see streaming pricing on electronic communications networks, as well as RFQ-based platforms. Algo trading already accounts for about 50% of NDF trading today. I think it will continue to become more electronic as technology advances.” 

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