BATS and Thomson Reuters have both announced new rules for their FX platforms to clarify the way liquidity is offered.
BATS’s Hotspot FX platform will see new standards introduced for market makers on 5 July which will reduce timeframes for acting on non-firm liquidity and increase targeted acceptance rate for such orders.
Hotspot provides both firm liquidity and non-firm liquidity, with the latter only provided by market makers, while firm liquidity takes priority. Market participants are able to choose whether they want to be able to use non-firm liquidity or not.
Despite its lower priority, non-firm liquidity can typically yield tighter pricing.
The new standards to be introduced on Hotspot include reducing the timeframe market makers have to act on non-firm liquidity from 200 milliseconds to 100 milliseconds. They will also be expected to achieve an acceptance rate of at least 85% of orders. Quote sizes must be a minimum of 1 million base currency and the market maker must have an average daily notional volume of $250 million or more.
Bill Goodbody, senior vice president for foreign exchange at BATS, said: “We believe that these new Market Maker standards will further increase fill rates and enhance market quality, creating an even more robust experience for our customers.”
The last look
Thomson Reuters is making changes to the way “last look” liquidity on its FXall platforms is used by market participants.
It said it wants to raise industry standards by outlining clear and consistent eligibility rules for price markers.
Last look liquidity has been criticised for providing the sell-side an unfair advantage, as it enables dealers to review orders after they have been dealt.
The Provisory Liquidity Protocol will be introduced to FXall platforms and enable participants to choose liquidity sources that suit their needs while ensuring that market makers can manage their credit and operational risk when making prices. As well as offering a choice over whether to use last look liquidity, information on execution which provide insight into execution quality will be made available to market participants.
“As a leading independent provider of FX transactions venues, Thomson Reuters is committed to ensuring a confident and effective trading experience for all market participants on all the platforms we operate, while still offering the choice clients need to meet specific trading requirements,” said Phil Weisberg, global head of FX at Thomson Reuters.
“Following the new Matching rules we set last year that encouraged high standards of behaviour in primary markets, the updated FXall operational procedures define the same rigorous standards for both our RFQ and Streaming Price trading protocols, where participants transact on a disclosed, relationship basis, as well as our Order Book platform, where participants trade anonymously using either firm or Provisory Liquidity.”