BROKING -- Specialism key to broking success

The polarisation of the market around key players in each product area was even more marked this year suggesting that brokers have specialised to survive. In particular, options is now highly specialised with a lot of firms operating solely in this market, such as the TFS-Icap partnership -- which won the category -- and Icor Brokerage in fifth place.

EBS’s continued success is due to its investment in technology and connectivity, Jack Jeffery, chairman of EBS in London told FX Week. "We have a huge commitment to, and emphasis on technology at EBS and it is an extensive part of our business strategy," he said. "We have a significant advantage in our connectivity. We have used the relationships with the banks to develop other areas such as with the prime broker service."

EBS has three areas it is focusing on for the long term -- to obtain credibility in all currency pairs, offering choice to the marketplace through initiatives such as EBS Trader on Bloomberg and growing its customer and counterparty base through initiatives like Prime Broker.

"We’ve found that in practice EBS Prime Broker offers a dual benefit to the market," said Jeffery. "On the one hand, it increases the revenue opportunities and market competitiveness of smaller participants. On the other, it has the more general benefit of improving market liquidity."

Brokers agree that specialism is now something that must be accepted. "Everybody recognises that it’s hard to move liquidity -- once the marketplace has satisfied itself with the distribution of liquidity it’s very hard to change people’s behaviour, whether that’s for products or for currency pairs," said Jeffery. "We don’t have to achieve the same level in all currencies, but we want to have a credible position in all."

Although its core business continues to be in spot, getting involved in new markets will form part of EBS’s ongoing strategy, said Jeffery. "Adding new services can be difficult but it doesn’t mean we don’t have plans to introduce new products," he said. recognise that going from zero is very difficult and we have factored this into our plans."

EBS is looking at moving into the forwards and money markets next year. "We are always looking at ways we can enhance and bring efficiencies to the marketplace, such as options and forwards. It doesn’t have to be linked to traditional broking -- there are other ways we can bring efficiencies and add value."

Hybrid models continue to dominate the forwards and options markets, and officials do not expect that to change. "The commoditised short end of the market can be pretty much fully electronic but voice brokers still play a role in options and forwards," said Jeffery. "There are successful examples of hybrid versions of platforms where it is a complex product and you have to achieve the build-up in terms of pricing and liquidity. It’s very difficult to do that with a wholly transparent model." But although the hybrid model will continue for options, there is still scope for brokers to compete in other areas such as STP and market data, he added. "You need to move quickly with new technology."

Options award winner TFS-Icap began operating the Volbroker electronic platform alongside voice-broking last year following its acquisition of an unspecified stake in the consortia-owned platform in December 2001. The business is now working much more cohesively, said Mike Leibowitz, chief executive officer of TFS-Icap in New York. "We’ve now had a year and a half to work out the merger between the electronic platform and our voice-broking business," he told FX Week. "We feel our hybrid model is functioning very efficiently and we continue to believe in this model." This year has proven successful with the amount of business being done increasing for all brokers, he added. "There has been considerable volatility and the majority of the major currencies have seen significant moves this year. There has been an overall increase in the amount of business being done in the entire market."

E-broking has proven a key factor in increasing TFS-Icap’s traction in the options market, said Leibowitz. "Using our screen-based platform has allowed us to increase our coverage -- we now have coverage for the entire market in emerging markets, in vanillas and in exotics," he said. The number of counterparties using the broker’s straight-through processing capabilities has also increased, which has made the business more efficient, said Leibowitz. "We plan to continue to increase our STP capabilities so that all the people that use Volbroker can use STP should they choose to do so." The majority of clients do want to use that feature, he added.

Tullett Liberty took top position in the forwards category, but the broker was unable to comment last week.

In a variation on the specialism trend, Prebon Marshall Yamane had strong support from voters in emerging markets across all three products, with votes coming in from countries including India, Colombia, The Philippines and Poland.