The planned transformation of EBS, owned by the world's largest interdealer broker ICAP (>> ICAP plc), comes as the sector faces greater regulatory scrutiny after alleged manipulation of foreign exchange benchmarks used to price trillions of dollars of investments and company deals.

Recommendations by the Financial Stability Board (FSB) global watchdog on Tuesday should have minimal impact on EBS, given that it is an electronic trading platform and has made a pre-emptive switch to a more transparent system, but CEO Gil Mandelzis knows the business needs to do more to arrest a recent decline in fortunes.

Interdealer brokers, which match buyers and sellers of currencies, bonds and other tradeable instruments, have been hit hard by new regulations that led their investment bank clients to cut back on risky trading while a prolonged period of low interest rates has also hit volumes in a sector that requires a degree of volatility to boost trading activity.

In response, ICAP has been trying to reposition its business towards electronic broking and post-trade services. However, EBS's annual revenue remains a fraction of the group total at 122 million pounds, with all ICAP’s electronic markets contributing less than a fifth of group turnover.

DOMINANT PLATFORM

Though EBS is one of the two dominant currency trading platforms, along with Thomson Reuters (>> Thomson Reuters Corporation), and is the main market for large banks to trade spot euros , yen and Swiss francs against the dollar, Mandelzis told Reuters that the company is looking to introduce up to four "initiatives" by the end of March.

These will add to a product line that includes its flagship EBS Market, which matches up bank traders' orders to buy and sell currencies, and EBS Direct, a direct-dealing platform primarily aimed at smaller and regional banks.

The new operations will expand the company's trading methods and instruments it offers, widening its client base beyond banks and proprietary trading firms, Mandelzis said.

Average daily currency trading volumes on EBS were $77 billion (44.93 billion pound) in June, ahead of the previous month, but more than 40 percent down year on year, according to ICAP data.

Israel-born Mandelzis, founder of fellow ICAP company Traiana and who took the reins at EBS in 2012, believes that volatility will return but is building the business to be less dependent on market fluctuations.

"Market volatility will come back over the next 12 to 18 months and we will have up to eight vehicles to capture that growth," he said.

"Within the next 24 months we will see very clearly strong indications for resumed growth that is not related to market conditions," he added, but declined to give specific growth targets.

Nor would he elaborate on the actual products the company is working on, though one senior analyst said it was likely that EBS would move into products currently traded over the counter, such as options and longer-dated FX contracts, which regulators want to push onto electronic platforms.

LOST GROUND

EBS, which has already been subject to a management reshuffle this month, is also looking to recover ground lost to competitors such as buy-side platforms KCG Hotspot and Thomson Reuters' FXall, which reported record volumes of $141 billion in June.

It has, however, moved quickly to capitalise on the recent benchmark scrutiny. In April it launched its eFix Matching service to help to shift the big voice-based orders at the centre of the currency market scandal to a more transparent electronic system.

Regulators in the United States, Asia and Europe are investigating alleged manipulation of the $5.3 trillion-a-day forex market, examining trading activity around the WM/Reuters fix, known as the London fix, whereby one daily price is agreed by the market.

The WM/Reuters fix, which relates to exchange rates including the euro, sterling, Swiss franc and yen, is compiled using data from Thomson Reuters (>> Thomson Reuters Corporation) and other providers. They are calculated by WM, a unit of State Street Corp (>> State Street Corporation). Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.

The recommendations made by the FSB on Tuesday, including changes to market infrastructure, systems and benchmark calculation, were welcomed by Mandelzis.

"Electronic trading in the open by third parties with very clear rules and auditability is definitely the way of the future," he said.

(Editing by Carmel Crimmins and David Goodman)

By Clare Hutchison