It’s October 1st which means data fee changes announced by ICAP for its EBS clients are set to go into effect today. As of today, the price of EBS Ticker, a one second interval market data product that provides a snapshot of prices and primarily used for non front-office trading needs, is rising 3% to $15,500 a month for an enterprise license and to $4,650 for a single use license.
More importantly, EBS Ticker is no longer being made available as a free bundled product of the $50,000 a month EBS Live. As a result, enterprise subscribers to EBS Live who were also using EBS Ticker will now be required to pay an additional $15,500 a month for that second by second market data product.
A low latency API of tick by tick FX pricing, EBS Live is viewed as one of the fastest available data feeds available in the market. For high frequency traders, the low latency API can be used as a source to monitor whether Liquidity providers are lagging in their price distribution. The feed can also be used by market makers for pricing of their liquidity to customers.
With the race to zero latency and increasing competition among traders for an edge in the market, faster data feeds are priced at a premium within the FX market. As such, with prices of low latency data feeds already expensively priced, the unbundling of EBS Ticker and additional fee requirement to use the product have led to complaints among some of EBS' customers.
On the implementation of unbundling, an EBS spokesperson stated to Finance Magnates: “EBS is uncoupling the previously linked commercial policies of EBS Live and EBS Ticker. A market data product, EBS Ticker is primarily used in non-trading functions. This change will ensure that EBS customers are appropriately licensed for the services and locations where they are consuming EBS Ticker.”
Overall, EBS is splitting its view of the two products, with EBS Live marketed towards traders and algo developers, and EBS Ticker more of a product geared towards the back office trading community.
An Expensive Race to Zero Latency
Effecting the FX market and other asset classes such as stocks, is whether the race to zero latency is a fair competition. While anyone can acquire low latency feeds and co-locate their servers at near proximity of exchanges and Liquidity Providers , the reality is that the costs involved limit this strategy to deep pocketed firms. As a result, debate has arisen whether low latency arrangements used by traders is an unfair advantage used against the rest of the market.
Within the FX industry, methods have been devised to provide a defense for market makers and slower buy-side traders against low latency players. An example is last look pricing models used by many liquidity providers allowing them to reject customer orders.
In addition, some ECNs have implemented the randomization of trades. In this model, orders are aggregated over a short period of time and then randomized in their execution. In theory, this prevents high frequency traders using low latency technology from having their orders always executed first. Noted interbank ECN FX platforms that use randomization are EBS and Tradition’s ParFX.
We see the move towards lower cost market data inevitable
ParFX has been specifically vocal about the benefits of randomization, with Dan Marcus, CEO of ParFX, stating to Finance Magnates, "When combined with a randomized pause of 10-30 milliseconds in an electronic trading environment, ParFX is able to nullify strategies reliant on extreme latency, while offering an efficient trading venue where speed or technological sophistication isn’t a critical factor.” Marcus added that part of a creating a level playing field is what he calls using a pricing strategy that is "is simple and transparent", with everyone having access to the same data.
Marcus also added that he believes the current race to zero latency and associated costs is unsustainable as he explained: “We see the move towards lower cost market data inevitable, as the current pricing structure is unsustainable. It does not provide value for money, prices out smaller participants and provides an unfair trading advantage to those with the deepest pockets."
Finding an Edge
Not everyone though is convinced that the FX market needs a level trading feed. The counterargument is that improvements in low latency connections are forcing banks and trading venues to improve their overall technology to compete in the market. Among the results of new technology used by dealing banks are tighter spreads for FX pairs and improvements related to pre and post-trade reporting.
In regards to the current changes by EBS, industry sources explained that banks affected by the extra charges from the unbundling are understandably unhappy by the new fees they will have to pay. However, consensus is that it won’t lead to immediate defections of their services.
What is more likely to occur is the creation of demand from banks for a cheaper version of EBS Ticker from other market data vendors. Overall, despite pockets of the FX market that would benefit from a more level trading field, such as corporates, the current reality is that traders and market makers continue to look for any edge they can find, and are willing to pay up for it.
