FX platforms divided on management of costs and speed
FX Week, October 2013 – Officials at EBS, LMAX Exchange and State Street Global Exchange debate key issues facing new and incumbent platforms during a live webinar.
Management of costs, speed, pricing
practices and trading behaviour are some
of the most challenging and divisive issues
facing foreign exchange trading platforms,
according to participants in a live webinar
hosted by FX Week last week.
During an hour-long panel on October 17, senior officials at EBS, Currenex and LMAX Exchange debated the impact of changing trading behaviour, depressed volatility and the launch of new platforms on their businesses. Addressing the fixed costs charged to market participants, David Mercer, London-based chief executive officer of LMAX Exchange, warned some platforms are charging too much for market data.
“What is apparent in the rest of the marketplace is the charge for market data can create unfairness and can be too high. The cost of market data is nowhere near as high as some people pay, and you can look at the larger futures exchanges to see what the real cost of market data is. I’m not looking for market data to be a source of revenue generation for us going forward,” said Mercer.
Banks have been calling for changes to cost structures on major platforms for some time, with many participants arguing the fixed costs are too high and there is insufficient transparency around brokerage fees and volume discounts. Jeff Ward, global head of EBS Direct in London, confirmed EBS is reviewing its cost structure.
“The fixed costs for EBS have traditionally been an area of revenue,” he said. “We are very much looking at what pricing does from a strategy perspective. It’s possible we will change – we are very heavily involved in this process. It’s not always easy and there are different business models. We will have to gauge what that study concludes.”
Meanwhile, David Newns, chief operating officer for trading and clearing at State Street Global Exchange, agreed with Mercer that charging large amounts for market data doesn’t make sense. “We do charge people in different ways for different things, but the basic real-time fixed market data feed we provide is essentially free, as long as you’re doing some trading. From that perspective, that’s significantly lower than the historical costs of accessing market data.”
Another area of debate was the use of a randomised pause applied to orders to prevent latency arbitrage – a measure that, in slightly varying forms, is central to start-up platform ParFX and has also been recently applied to AUD/USD and USD/ CHF on EBS, with plans to roll it out to other pairs. While relatively simple in technology terms, the measure has drawn fierce criticism from some platforms.
“It’s an extra level of complexity in what is already a relatively complex marketplace. I’d agree you don’t want to get into nanoseconds, but I think it’s too early for latency floors. In all of our venues, no-one has yet asked for randomisation. When banks want to get done, they don’t want to be randomised, they want to hit the price as quickly as possible,” said Mercer.
EBS’s Ward responded that it is too early to draw definitive conclusions but the latency floor is working as intended. “Latency and certainty of execution are extremely important – there is no doubt about it – but not at the expense of a healthy ecology on the platform. It has certainly not been a trivial change from a decision-making perspective,” he said.
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Click here to watch the full 60 minutes webinar
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Media Contacts
For further information please contact:
LMAX Exchange (London):
Barbara Pozdorovkina T: +44 20 3192 2510 E: [email protected]
About LMAX Exchange
LMAX Exchange Group is a dynamic, visionary and award-winning financial technology company. Recognised as one of the UK’s fastest growing technology firms, LMAX Exchange is leading the transformation of the global FX industry to transparent, fair, precise and consistent execution. Operating one global marketplace for trading FX, metals, indices and commodities, LMAX Exchange delivers open access, transparency and a level playing field to all market participants.
LMAX Exchange Group offers all clients the ability to trade on LMAX Exchange central limit order book, driven by streaming no ‘last look’ limit-order liquidity from top tier banks and non-bank financial institutions. Servicing funds, banks, brokerages, asset managers and proprietary trading firms, LMAX Exchange offers an anonymous, regulated, rules-based trading environment, order execution in strict price/time priority, and access to real-time streaming market and trade data, enabling all market participants to control execution quality and total trading costs.
Offering a comprehensive range of instruments and ultra-low latency execution, LMAX Exchange operates a global FX exchange infrastructure with matching engines in London, New York and Tokyo.
LMAX Exchange - a unique vision for global FX.
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LMAX Exchange is a trading name of LMAX Limited, which operates a multilateral trading facility, authorised and regulated by the Financial Conduct Authority (firm reference number 509778) and is a company registered in England and Wales (number 6505809).
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