Ecology of the Modern Institutional Spot FX: The EBS Market in 2011

Abstract

The EBS market has two access methods for its customers: GUI-based access for manual traders (MT) and automated interface (AI). In this work we offer taxonomy of the AI customers in terms of average daily order number: ‘slow’ AI (those AI that do not trade more than MT), high-frequency trading (HFT) firms, and ultra-HFT (those professional trading firms that trade more than the bank AI). Liquidity of the EBS market is characterized with two measures: percentage of time with two-sided market (PTTSM) and the bid/offer spread. The main focus of this work is on the EBS market liquidity during the intervention by the Bank of Japan on 4-Aug-2011 and intervention by the Swiss National Bank on 6-Sep-2011. Generally MT and HFT have the highest PTTSM, and HFT provide the tightest bid/ask spread. It is suggested that HFT determine the FX market volatility rather than just affect it.

Keywords: FX, high-frequency trading, market microstructure