Client:
Institutional FX Traders
Challenge:
Reduce price signaling and minimize market impact for effective risk transfer into a global FX network.
Solution:
EBS Market price discretion order
Overview
EBS Market has enhanced its price discretion order type to allow the central limit order book to support execution of “price skews” within the lit market more efficiently. Good for session or display quantity (iceberg) orders with price discretion allows traders to place a lit order with a non-displayed price offset. Because the offset limit price is not visible in market data, this order type enhances risk management by minimizing signaling (price leakage) and market impact. Additionally, it presents an opportunity for price makers/takers to distribute liquidity on the platform.
Price discretion orders are available across all pairs, including FX Spot, Spot Precious Metals, ON-SEF and OFF-SEF NDF instruments.
Benefits of using “good for session” or “display quantity” (iceberg) orders with price discretion
This order combination has several advantages as users can place a lit price further down the order book while placing hidden price discretion at the bid or offer, or between the bid and offer.
Benefits:
- Avoids price information leakage
- Reduces market impact of placing passive interest
- Participate in market moves as the lit price has priority over the hidden price
- If an incoming aggressive order is partially filled and matches the price discretion order, the price discretion order deals at the incoming aggressive order price, enabling price improvement
- Distributes liquidity through a global network of clients leveraging EBS’ established credit model
- Potential to hedge risk at better price levels
Spot core pairs and Asian 1M NDFs price discretion order distribution between September - November 2023
Heatmap showing price discretion order submission distribution in 30 minute buckets between September and November 2023
When and why is market impact so important?
Market impact has become a crucial barometer of the cost of FX trade execution, as any adverse movement in the market subsequently reduces profitability. By adapting to execution styles that reduce post-trade market impact, the underlying FX market has evolved to tighter top of book spreads, giving market makers the confidence and ability to hold risk for longer. EBS Market’s price discretion order drastically reduces post-trade impact to the market, thereby providing a means to reduce footprint over hedging of natural interest. For example, in October 2023, the average post trade market impact at 60 seconds for orders on EBS Market with price discretion was approximately zero.
Additionally, users of the price discretion functionality can remain confident that the EBS matching logic provides price improvement should the opposite interest comes in through their non-displayed price discretion level. Click here for example.
Between September and November 2023, 10% of EBS trades executed with orders using price discretion matched with a price improvement. Combined with a lower market impact on trade execution, this presents traders with a compelling opportunity to maintain yield on their trades.
Explore various price matching scenarios using the price discretion functionality.
Manual FX traders and EBS Workstation
Supporting and enhancing the trading experience of genuine order flow from the manual FX trading community is critical to the liquidity and diversity of participation on EBS Market.
The EBS Workstation GUI now supports the ability to combine the price discretion order type with the “display quantity” feature. This combination can improve the execution outcomes of manual traders by supporting the execution of larger trade sizes and has seen significant adoption over the last three months from the EBS Workstation user base. Feedback has been positive.
Presenting an example each for a Spot FX and an NDF currency pair on how to use the feature on the EBS Workstation GUI as below.
Spot FX – EUR/USD
Bid placed at 1.09235 with non-displayed level at 1.09265 (inside lit top of book).
Order matches with incoming sell order placed at 1.09265, with market top of book unchanged.
One-month outright NDF – USD/KRW
Bid for 20M, showing only 1M, placed at 1341.1, joining top-of-book, with non-displayed level at 1341.2 (inside current top of book).
Order rests in the book, and can match with opposing interest within the PD range (1341.1-1341.2).
New order types on EBS Market aim to bring pricing and hedging interest into the central limit order book (CLOB) that otherwise may transact in fragmented and closed bilateral pools of liquidity. By facilitating greater FX natural interest to match within the CLOB, EBS Market aims to increase market activity and enhance functionality of the primary market.
To find out more or get connected to EBS Market, please contact FXTeam@cmegroup.com or your CME Sales representative.
CME FX – Bringing the FX market together
Subscription Center for EBS Market on CME Globex Notice - Customers can now subscribe to receive EBS Market on CME Globex Notices via the Subscription Center, a self-serve online resource for managing email communications from CME Group. The EBS Market on CME Globex Notices are currently sent weekly at 2 a.m. Central Time (CT) Thursday and include communications regarding the up-to-date details and actions required for clients to support the EBS Market on CME Globex. Additional details about how to subscribe to the EBS Market on CME Globex Notice are available here.
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