THOUGHT LEADERSHIP
CME GROUP
Strengthening FX primary liquidity on EBS
Participants now benefit from enhanced price discovery , improved pricing flexibility and reduced adverse selection risk . Collectively , these have generated materially tighter bid-offer spreads and reduced market impact from trades , empowering the marketplace to manage risk more effectively via the primary market ’ s central limit order book .
Key highlights observed in EUR / USD spot liquidity on EBS Market :
• Top of book spreads witnessed a significant 30 % reduction .
• Average volume-weighted average price ( VWAP ) spread for 10m EUR / USD has seen a reduction of 25 %, based only on lit liquidity ( excluding iceberg hidden inventory ).
• Spread improvements held over key macroeconomic events . For example , EUR / USD median spreads were 17 % lower over US CPI data release ( Apr Vs Mar ).
• Over 20 % of EUR / USD volume is now being traded on quarter and threequarter pip increments .
• Percentage of price points traded has seen significant increase to almost 90 % from a prior average of ~ 60 %.
Lower market impact with trading on EBS Since the launch of quarter pips in EUR / USD , we have observed lower market impact on trades done on EBS Market in the pair as measured up to 30 seconds post transactions . This seems to have been supported by the observed increase in total inventory , + 22 % increase in order volume available down to a depth of 2.5 pips in the order book . The increased granularity of pricing further augments the effectiveness of price discretion functionality , providing the ability of users to place unlit interest at price points within the lit market too . For example , if EUR / USD spot market top of book is trading at 0.5 pip or 0.75 pip , the price
The rollout of faster market data and lower minimum quote life ( MQLs ), along with granular price increments ( starting with AUD / USD and EUR / USD ) over the course of Q1 2024 have resulted in improvement in liquidity on EBS market , widely regarded as the source of price discovery for major spot FX and Asian NDF pairs .
Data source : Quant analytics , CME Group
discretion feature can allow participants to place interest inside the market due to availability of 0.25 pip price point . These features when combined make for interesting dynamics for clients to use EBS for matching their interest with a global network of FX participants .
What ’ s coming next ? We look to further deliver granular price increments for other spot and NDF pairs to continue strengthening the FX primary markets across a wider spectrum of currencies . CME Group FX is also working with market participants to evaluate paths for easier access to its FX central limit order books across FX spot , futures , NDFs and options . As part of this effort , we plan to consolidate EBS Market NDFs into a single , unified liquidity pool operating under the EBS UK MTF ( operated by BrokerTec Europe Limited ) by the end of the year .
CME Group EBS products are not suitable for all investors and involve the risk of loss . Full disclaimer : https :// www . cmegroup . com / disclaimer . html . Copyright © 2024 CME Group Inc .
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