EVIA’s core strength is the ability to consolidate views and data and act as a common voice for an industry operating in a complex and closely regulated environment, by acting as a central point for the industry and providing clear communication with central banks, governments, policy makers, and regulators.
EVIA provides specific standards and maintains a clear focus and direction for the participants and stakeholders across the market ecosystem, building upon a credible reputation from over 50 years of experience.
EVIA was previously known as the Wholesale Markets Brokers’ Association (WMBA) whose name reflected the Interdealer Broker industry and its origins began with the Foreign Exchange and Deposit Brokers' Association (FEDBA) established over 50 years ago. Its members cover global markets and facilitate the overwhelming majority of transaction volumes in the Over-The-Counter (OTC) markets.
Association rules can be found HERE
Wholesale market venues and broking firms act in a number of specifically permissioned roles to operate markets and arrange liquidity in order to execute, or to bring about wholesale transactions in both investment and in non-investment products. Initially known as “Inter-dealer brokers” (“IDB’s”) when nearly all counterparties were authorised as banks. Typically, counterparties in these markets would be wholesale market participants consisting of clearing and investment banks; investment firms such as asset managers, principal trading firms, life, pension and hedge funds; building societies; public sector bodies such as government departments and local authorities; but they would not include any retail clients, their function is to act as an intermediary through which customers can achieve the size and shape of their required risk transfer at the best price possible, by the matching and concluding of transactions with third-parties. IDB’s provide access to organised venues, OTC or exchange traded pools of liquidity across wide full range of asset classes and their associated derivatives.
The majority of the arranging activities are based on arranging liquidity for customers who themselves act as principals to the transaction. This service is carried out according to market rules, conventions and pre-agreed terms of business; but without the firm acting in the role of agent to either counterparty who would both be invoiced a brokerage or execution fee for the services provided. Trading is conducted on an ‘arm’s length basis’ with counterparties who do not receive nor take any reliance upon the advice of the specialist staff.
The multilateral provision and arrangement of liquidty is the core tenet of the wholesale markets broking firms’ operations. Open and non-discriminatory access by all and any similarly situated market participants creates deep and fair liquidity pools and price discovery. The ability of the execution specialists to reach out and solicit for balance sheet risk factor provision additionally enriches the spectrum of outcomes. This contrasts to pure agency functions such as futures brokers who entirely act in an agency capacity and therefore owe a duty of execution quality care in acting as the person of the client bringing an order to a marketplace. It may be the case that the wholesale markets broker additionally offers an agency service or facility.
Unlike dealers providing trade facilitation, wholesale markets broking firms do not fulfil customer orders by taking the opposite side of the trade as a risk position and seeking to hedge the related risk components. Nor do they usually operate the settlement mechanisms or clearing pools but transmit completed or alleged trades to CSDs and CCPs as appropriate.
Prices, orders and expressions of interest will normally be communicated multilaterally and across a variety of mediums, including telephone, electronic instant messenger, electronic display screen, an auction matching system, or by an electronic trading system (for example a Multilateral Trading Facility/ Organised Trading Facility as defined by MiFID, SEF as defined by the Dodd Frank Act or an RMO as defined by the Singapore markets law). In the US statute these methods are collectively termed as “any means of interstate commerce,” providing a useful definition to express the wide and evolving technological basis for communications which provide for the discretion of the operator, but are transmitted without any discrimination across the market participants, or liquidity pool so as to effect a “virtual trading pit”.
Staff at Wholesale market venues and broking firms act under a variety of regulated conduct requirements across different regimes and will endeavour to match the counterparties trading requirement or orders with other trading interests in the market. In each market, “brokers” will communicate whether bids and offers are ‘firm’ or ‘indicative’; in most cases market quotes provided represent the tradable “core economic terms” or pricing factors to a transaction that may have many component parts such as spreads, options or packages. In most cases this means that brokers can only give the counterparty access to their own liquidity pools and will pass prices or orders to and from its other counterparties. As a transaction may require many component trades, execution specialists within firms may use other trading venues or linked brokers with whom they have a relationship in order to arrange a transaction. Where the firm is acting in an agency capacity to a client and under the rules of a third-party trading venue, then this will be made clear well in advance of trading as execution and fiduciary duties will likely apply.
Brokers utilise price dissemination screens in their role as voice brokers and illustrate an actual or indicative mid-market price based on actual trading, orders and expressions of interest. Such pre-trade transparency closely aligns with the definitions in MiFIR and while brokers intend to provide counterparties with the most accurate and reflective view of current price levels, it may not be possible to achieve the desired transaction size at the displayed indications or “close-touch” prices if a corresponding order is not then available. Order handling rules, eligibility, trading methodology, instrument descriptions and credit parameters are all set out in the user terms for the relevant trading venue rule book such as those in Europe for MTFs and OTFs.
The name passing model is when the broker takes on an arranging role in a transaction between two or more counterparties. The broker, through price dissemination, distributes quotes to other market participants showing both price and volume. For voice arranged instruments, these prices and volumes are dependent upon market convention, either firm or indicative levels of interest, and must be confirmed prior to the trade being completed. For electronic order book products such as MTFs, these prices and volumes are typically firm and are traded without further communication.
Once the trade price, volume and terms have been agreed, either through further conversation with the broker or with the direct hit or taking order book prices, the counterparties’ names are disclosed and the arranging intermediary steps away from the transaction after providing a complete confirmation to each party, usually via one of the specialized intermediary services such as “MarkitSERV”. Bilateral agreements are then concluded between the counterparties and the wholesale broking firm will invoice a brokerage fee bases upon a pre-agreed schedule and the notional amount transacted. Prices are given and trades executed, excluding brokers’ brokerage (i.e. a clean price). Execution fees and brokerage rates, which are required to be fair, transparent and non-discriminatory, are pre-agreed between the counterparty and the wholesale broking firm by product, often with volume discounts or other fee discounts based on market making activity.
Under the “Matched Principal Model”, the intermediary facilitates its clients in anonymous trading activity in cash instruments such as corporate or sovereign bonds, by taking part in a matched transaction fleetingly as principal. The broker can provide for its client’s an indication of market prices and volumes for OTC or venue traded investment products, or for exchange traded cash equity products the client can use the exchange as an indication of the market.
The wholesale market venues and broking firms may use a third party to facilitate settlement in an arrangement known a “Model B,” but in either case it will not actually hold the trade side either operationally nor indeed speculatively for any period of time. The trade will only be executed as a result of a firm and matching client orders to buy or sell at a set price and size.
Once the trade is complete, price, volume and terms are communicated through the broker and back office confirmations. Settlement is made between each client based on the market convention with the brokerage fee, being either incorporated in the all-in price passed to the client through a disclosed brokerage, typically in the trade confirmation and also through a monthly invoice.
Under the agency model, the wholesale market venues and broking firms acts in the personae of the client who takes reliance upon firm’s conduct and outcomes. This differs from the other models because the firm owes execution obligations only to one counterparty side to the transaction and the terms “market side” and “client side” become meaningful. Therefore, the agency model is restricted to the reception and transmission of orders, and products tend to be simpler and subject to more precise order handling requirements because they are placed onto tertiary markets which the firm does not operate and acts as a rule taker.
The standard deployment of the agency model by wholesale broking firms is to facilitate “Block Trading” on exchanges such as Regulated Markets (“RMs”) or Designated Contract Markets (“DCM’s). These are especially common in physical commodity and cash equity listed contracts. The firm’s specialists will arrange a block trade, by privately negotiating futures, options or combination transaction that meets certain quantity thresholds as predetermined by an exchange or trading venue. Block trades may be executed away from the central marketplace under applicable regulations, and subsequently reported immediately to the exchange to comply with reporting obligations and for clearing purposes.
In the derivatives markets, the agency model usually requires that the wholesale broking firm receiving a client order may engage in exchange trading under its own or name, or that of a third party in the capacity of an ‘Executing Broker’, as specified in a “‘Give-Up Agreement” specifying uniform brokerage execution services with the client’s own derivatives clearing firms. Under this model the firm is subject to intraday exposure of this principal position until the trade is accepted by the counterparty. The purpose of this is to facilitate the instructions of the principal as a client.
The wholesale market venues and broking firms will likely offer execution through its own permissioned trading venues upon which all trading will be governed by the relevant rulebook which is published and sets out the jurisdiction of its permitted licences and concomitant access, onboarding, conduct, transparency and reporting requirements.
These will include Monitoring and Surveillance not only to check for market abuse, but also to ensure compliance with wider financial crime responsibilities including money laundering and political sanctions. Market monitoring will have automated measures to search for statistical patterns and trade correlation which might be of concern in order to identify potential breaches of the trading venue rules, other market rules, disorderly trading conditions, or conduct that may indicate market abuse.
The trading venue rules will also specify the applicable Codes of Conduct which are increasingly being drawn into regional statute such as the “Senior Managers and Certification Regime” in the UK and which serve to make wholesale broking firms act as Self-Regulatory Organisations [“SROs”]. There is has become categorical that specialist employees arranging, bringing about and executing transactions will act responsibly, in a fit and proper manner and meet applicable standards of market integrity. Brokers and dealers who operate in Foreign Exchange, Money Markets, Repo, Precious Metals or Financial Benchmarks each support tailored Codes or principles setting out best practises promoting the integrity and effective functioning of the markets. Other broader business codes set out conduct in relation to the payment of invoices and in financial reporting.
Firm revenues may be generated from other related ancillary activities. These include the provision of both market data and of the derived data series and indices that are required across the wider financial community.
Services specific to derivatives are also commonly offered such as the compression of swaps and swaptions portfolio’s, and the provision of derivatives valuation and execution analytics.
Firms also commonly offer consultancy services related to the provision of research and market intelligence, as well as outsourced trade execution services.
Wholesale market venues and broking firms seek to offer a scope of services that encompass traditional to the most forward thinking trading technologies turning on teams of staff who need to be agile and adaptable enough to meet the remodelling challenges in market structure and capitalise on those new opportunities which arise from these changes.
They seek to deliver both these execution and broker-dealer services from an integrated platform that offers customers flexibility and choice in price discovery, execution and the processing of their transactions through voice, hybrid or fully electronic brokerage options. By engaging with clients and providing such innovative products and services in an open and competitive ecosystem, they engender and enable market participants to transact with confidence, so facilitating the flow of capital and commodities around the world, enhancing investment and encouraging economic growth.
These additionally comprise financial technology solutions, market data, and analytics related to financial instruments and other related markets to combine data, knowledge and intelligence into contextual insight and commercial guidance.