CME Releases Early Data on EBS Move to Quarter Pips

Just under a month since it implemented a change to EBS Market which saw the introduction of quarter pips in its flagship EUR/USD pair, CME Group says it has witnessed a “notable” reduction in top of book spreads.

In a client note, CME says EBS Market has experienced a 30% reduction in the top of book spread in EUR/USD since the introduction, something it says delivers “improved pricing flexibility when placing passive orders, materially tighter bid-offer spreads, and reduced market impact from trades”.

The average top of book spread since release is 0.63 pips throughout the day, the note reveals, adding that the average VWAP spread paid to execute EUR 10 million has seen a reduction of 25%, based upon lit liquidtiy (excluding Iceberg orders). Over 20% of EUR/USD volume since the change has been executed on quarter and three-quarter increments, CME says, adding that around 75% of participants and 60% of manual traders are also transacting on the smaller increments.

Introducing the ability to trade in smaller increments should naturally lead to a reduction in spreads, nevertheless CME will be happy with the initial results of the change, as it enables it to point to a positive response from the market – something that is not always guaranteed when a change is introduced to one of the primary CLOBs.

Ultimately, the success, or otherwise, of this change will be seen in the numbers that count – revenues and volumes. Smaller increments should help deliver more accurate market data – a crucial revenue source from the EBS business – and CME will be hoping that is also reflected in an uptick in activity.