Currency firm tests system for return of Greek drachma

Icap, the world’s largest electronic trading platform for foreign currency, said Sunday it had been preparing for the possible break-up of the euro.

The region’s debt crisis has mounted in recent weeks, leading to concerns about the exit of some troubled peripheral countries or even the ultimate dissolution of the common currency.

Icap is testing its EBS platform to trade the Greek drachma against both the euro and the U.S. dollar. This follows discussions with clients -- largely dealer banks -- and third parties such as CLS, a settlement system for currency trades, about the need to be prepared for “any number of possible outcomes”, said Ed Brown, executive vice-president of business development and research at Icap Electronic Broking.

“There has been enough discussion about a break-up of the euro that we are knocking the dust off the pre-euro [currencies] and making sure everything works,” Mr Brown said. “Some of these currencies have not traded in a decade.”

CLS declined to comment.

The tests, which began a few months ago, involve only the mechanics of trading currencies on Icap’s platform and do not include valuations or dummy trades on EBS involving the banks themselves. Icap also stressed that its preparations were not a prediction, but a safeguard against system problems providing further market disruption if a country does break from the euro.

Icap has only tested the drachma against the euro and US dollar and no other legacy eurozone currencies, but said its system was standardised enough that testing one of the legacy euro currencies would make it easier to roll out others.

Last week was a punishing one for the eurozone in the financial markets, which has prompted dialogue in the financial community, not just about how to prepare investment portfolios for a break-up scenario but also for so-called “back office” considerations such as computer systems and standardised documents, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

“It took years of planning for the introduction of the euro,” said Mr Chandler. “At that time, for several years, there was convergence not just of currencies, but of interest rates. Now we would have divergence.”

According to a survey of just under a thousand Barclays Capital clients conducted in November, almost 50 per cent of respondents expected at least one country to leave the euro area in 2012, with 35 per cent of investors expecting the break-up to be limited to Greece and one in 20 expecting all five peripheral economies to exit next year.