Euronext FX Rolls Out Spread Matrix

Euronext FX has added to its data product suite with the launch of Spread Matrix, a tool designed to provide a near real-time view of the institutional spread distribution by currency pair.

The product has been developed to meet demands from clients to better understand market conditions, especially in the more volatile environment seen in recent years. Often the top of book on a platform is formed from pricing by two different liquidity providers, the Spread Matrix is designed to look at the individual streams provided by each LP to present a clearer picture of actual spreads irrespective of skews.

Through the Spread Matrix, Euronext FX delivers a consensus spread, meaning for example, one LP at 0.3 pips wide in EUR/USD, will be rolled into two or three LPs at 0.4 pips wide, to show three or four LPs at 0.4 pips. “We are very careful to prevent information leakage, explains Jayesh Patel, head of product at Euronext FX. “We are delivering a true picture of the liquidity landscape – to 16 levels in EUR/USD for example – while protecting the IP of the LPs.”

The actual depth of market to which the Spread Matrix operates is currency pair dependant – in emerging markets it would be much less than 16 levels naturally, although there is a case to say that in these markets the product could be even more useful given the relatively sparse liquidity and fewer LPs available to price.

Equally, the Spread Matrix should help LPs outside the very top tier with their pricing in markets there they do not provide a low-touch service. With the buy-side continuing to express concern over LP concentration, a data tool that helps broaden the pool of LPs, whilst keeping those LPs informed of market conditions, could prove very valuable. Patel also points out that Tier 1 LPs also find the tool useful, especially when required to service their client bases at different depth and spread levels.

In its initial iteration the Spread Matrix does not provide information based upon intended size of trade, however Patel observes that clients can infer from the depth of book data, how much liquidity is likely to be available. Currently, only quotes for 1 million units and above are included in the dataset, therefore a minimum depth of book can be inferred using the number of LPs at various levels.

It will be interesting to see how effective the new tool is at predicting bursts of volatility in the market, it is likely that that information will come from lower down the book rather than the very reactive top of book, but anything that helps market participants better understand market conditions has to be a good thing.

For Euronext FX, Patel says this roll out is part of a broader effort on the part of the business to enhance its data offering. “This launch comes off the back of strong adoption for our more traditional market data offering over the past two or three years,” he explains “The strategy is to launch innovative and insightful data products, on a regular basis, to help our clients better understand the market. On the horizon is V2 of our FX market flow product off the back of a successful launch last year this new version includes several new derived metrics reflecting daily market trends, and more products will follow.”