During the last few weeks, it has become apparent that some of the worlds largest FX dealers, namely London’s banking giants, have begun to review their business model, resulting in the days of non-chargeable processing of benchmark orders being numbered, as well as mid-price execution looking increasingly likely to be consigned to the history books.
Ordinarily, this may lead to a possible consideration that institutional non-bank firms could have the run of the market in terms of developing a global structure in which benchmarks could be fixed, thus taking on some of the order flow which is becoming ever more expensive to execute via banks.
A hindrance to this possibility has come about, however, with discussions between Moscow Exchange and ICAP’s ECN business unit EBS intended to agree terms for USD/RUB fixing having broken down after two years of planning and corporate engagement between the two firms.
Enthusiasm between the two parties was high at the initial stages, however discussions tailed off, the process became cumbersome and eventually amounted to nothing, with the catalyst having been ambiguity over which party would operate as the fixing agent.
Just over a year ago, EBS had decided to set in place plans for a USD/RUB reference rate in conjunction with Moscow Exchange at the biennial International Ruble Settlement Forum, as a result of industry concerns over the existing benchmark for the USD/RUB pair provided by Chicago Mercantile Exchange and the Emerging Markets Traders Association.
Although not quantifiable, it is indeed entirely possible that Moscow Exchange may have a commercial interest in ensuring that the information services division of ICAP does not have full access to EBS and Moscow Exchange’s data, which would be required in order to calculate the benchmark using an algorithm.
ICAP Information Services had proposed levying a charge of 2% to both parties in order to perform this function.
“We’ve decided to postpone the launch of a joint Moex-EBS RUB fixing” stated Igor Marich, Moscow Exchange’s Head of Money Markets, when approached by FXWeek regarding the subject today.
He continued to explain that there are no ideas at the moment about how and when it can happen. “We’re focusing on the development of Moscow Exchange FX Fixing. It’s already used in our FX futures and some other exchanges are interested in it” he concluded.
With the demand for ruble liquidity having increased internationally during the last year, and Moscow Exchange’s continual efforts to be regarded as a venue which is well placed to compete with the large firms that dominate the entire electronic trade execution landscape such as NASDAQ OMX, IntercontinentalExchange and CME, this is likely to be something of a blow to its otherwise extremely credible efforts to compete on the world stage.