CME Group’ FX Link Goes to Six Decimals

Following what it says was a successful reduction in minimum price increments (MPI) on its listed FX futures, CME Group has announced that the MPI of EUR/USD contracts on FX Link – CME’s platform that connects futures with the OTC market place using OTC workflows – has been reduced from one-tenth of a pip (0.00001) to one-twentieth (0.000005).

CME says it conducted “detailed order book analysis” and the results of this, together with client validation, supported the decision.

It is important to stress that FX Link is a different kind of liquidity pool, effectively a basis contract rather a spot equivalent, however this move will be followed with interest in the FX platform world. While the fifth decimal place is widely used in OTC markets, there are concerns in some quarters that order book quality is diminished by allowing smaller amounts on reduced increments.

Historically, regional banks especially have become frustrated at the ease with which smaller orders jump in front of their resting order, so called “pipping”, and have pushed for half-pip minimums on the major CLOBs. With CME pushing the envelope, albeit on FX Link which is more attractive to forward dealers perhaps, interest will focus on whether the trading experience on FX Link is enhanced, which CME clearly believes it will be, as much as it will the reduced cost of trading.