CME Reduces FX Tick Size, EBS Platforms Added to Globex

From today (February 22) CME Group is reducing the tick sizes for privately negotiated trades (blocks and EFPs) submitted to CME Clearport across a range of its FX futures contracts.

Depending upon current market convention the tick sizes will change for trades on Clearport, with the majority going to what is commonly referred to as one tenth of a tick (0.00001 in EUR/USD for example). The changes bring CME’s futures more into line with FX pricing practices in the OTC markets.

In addition, an extension of block reporting times from five minutes to 15 minutes during regular trading hours has been introduced so that there is now global consistency in reporting requirements for all FX futures blocks, in the same way that there already is for CME’s FX options blocks.

“This change will enable customers to execute large trades at finer increments that are more comparable to the OTC markets, whilst still also retaining the liquidity in the CLOB for competitive, open, and efficient price discovery,” CME says on its website.

The exchange says that the role of “ex-pit” mechanisms is “likely to grow in importance as additional ways to access cleared liquidity”, but acknowledges that for market participants used to trading on a disclosed basis with chosen liquidity providers in the OTC market, integrating and interacting with a futures CLOB can be a large behavioural change.

“In response to these dynamics, and in consultation with our clients, we are making several enhancements to how market participants can transact FX futures away from the CLOB in so-called “ex-pit” transactions,” CME says is a release on its website. “We feel these changes will provide a stronger bridge for customers who are only familiar with OTC markets to be able to access futures liquidity and to benefit from the capital, operational, and counterparty risk management benefits of clearing.”

CME reveals that in 2020, almost 180 buy-side customers added new pairs of FX futures or started trading FX futures for the first time, with notable growth from both hedge funds and asset managers. It adds that the large majority of volumes from these new participants continued to be transacted directly through the CLOB, but adds, “As we look forward to 2021 and beyond, we feel that the ability to use blocks and EFRPs not just for their functional benefits, but also for the familiarity of executing orders in a similar way to the OTC market, will be of increasing importance – enabling new customers to trade on a disclosed basis with their chosen liquidity providers, and without needing to consider how to integrate with the CLOB or having to work an order over a period of time to get the optimal price.”

The changes come just ahead of a planned launch that will see, from March 1, EBS Market and EBS eFIX Matching available on CME’s Globex platform for client testing and development of all API services and features required for client system’s functional certifications for order entry and drop copy.

The release does not include any market data services, including security definition and market state messages. In Q2, CME is planning to launch testing of EBS market data products, ahead of a full launch of EBS on CME Globex in Q4.