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Fairer is better! New market structures for more transparent markets

Release date: 11 Mar 2019 | Eurex Exchange

Fairer is better! New market structures for more transparent markets

Changes in the financial markets are nothing new, only the reasons and the speed varies. At present, we are facing a continuously evolving investment behavior and growing regulatory challenges. What to do?

The answer is simple: move with the market or, even better, be ahead of the market. That is why we consequently review and adapt our existing market models to best support regulatory effort and our customers.

We want to attract as much diversified flow as possible to our main tool, which is the central limit order book. As there is also a need for large-scale business, we developed solutions to attract this heterogeneous flow on exchange as well. That way, we will support the buy side while at the same time serving the sell side’s needs. Our market structure roadmap aims at strengthening fairness in the price discovery process and at equal treatment off all trading participants.

Three effective tools drive our initiative

Since we believe that volumes and liquidity rise if markets are well organized these three new mechanisms are meant to enhance organization, transparency and fairness.

Eurex EnLight – our solution for large-scale business that ensures transparent and efficient off-book trade conclusions. The aim is to bring OTC business in Eurex products on exchange and into central clearing. This selective RfQ-based service allows banks and brokers to selectively contact Market Makers with requests for quotes in order to find a trading counterparty. Orders are executed in Eurex’s T7 Entry Service and then automatically transmitted for subsequent post-trade processing. 

Eurex Improve aims to attract additional trading volumes by providing our members with a tool to guarantee towards their end-customers full executions of any trading quantity to the best price available in the market. The objective behind Improve is to motivate banks/brokers to attract more customer flow to the order book by providing them with preferred customer interaction ability. This counters fragmentation as it strengthens the order book. To the benefit of the end-client, this market-driven solution is meant to increase facilitation of customer flow to interact with the price improvement competition in the order book. 

Passive Liquidity Protection addresses the speed disadvantage liquidity providers have in the order book versus certain aggressive super-fast strategies. It enables liquidity providers to strengthen their focus on the need of the end-clients such as institutional investors. It is designed to help level the playing field by giving all traders who have placed a resting order additional time to react to price changes in related markets. This helps end investors to find appropriate liquidity.