Thomson Reuters has announced it is introducing more granular pricing for AUD/USD across its spot FX trading platforms. The change has been in beta testing with clients for some time and the change will officially be rolled out at the end of March.
Pricing for the pair will be in half pips to five decimal places, the new pricing regime will also be reflected in the firm’s market data offerings and added value calculations, as well as on its Eikon screens.
“The change supports the increased use of algorithmic and API driven FX trading in the marketplace, which is in turn driving many of our clients to seek even more granularity in pricing,” says Paul Clarke, head of FX venues, Thomson Reuters.
Profit & Loss understands the release of more granular pricing has not been without dissent amongst the ranks of its customers. An FX trader at a bank in Australia says their institution is unhappy at the change because it will lead to more “pipping” at top of book. “By making the spread tighter they are giving HFTs more opportunity to post to top of book, meaning genuine liquidity gets pushed down the stack and has less chance of being hit,” the trader argues. “This will lead to more gaming, which we don’t think is good for the market.”
Another senior e-FX trader agrees, noting, “Margins are already tight in Aussie, this will squeeze them further and mean our quality of liquidity will diminish.”
These arguments are dismissed by the head of e-FX at a bank in London, however, who argues, “AUD is quoting to half pips – and less – just about everywhere else except the primary market, which is Matching. All this does is brings the primary venue into line with where the industry already is. It will allow us to give our clients better execution and squeeze more value from the business – it’s a good move.”
The move to greater granularity would appear to make sense given the wider changes taking place in the industry where, as noted, AUD is often quoted to five decimal places. For its part, Thomson Reuters says the size at top of book and the depth of market (measured as a reduction in volume weighted spread to trade defined volumes) have both improved since it added AUD/USD to its 25ms binary multicast feed last year.
Sources also say the firm is confident that the change will not have any noticeable impact upon behaviour on the platform, thanks to changes Thomson Reuters made to its rulebook for Matching in 2014.
Clearly the firm is hoping that adding the extra half pip will provide further depth and given the growth in automated trading over the past few years it feels it is a necessary development to maintain its position in the AUD market.