By Eugene Markman, CEO, ION MarketFactory
Since CME acquired EBS in 2018 we have all been waiting to see how the technology would be integrated. EBS’s flagship product, EBS Markets, provides access to executable liquidity across more than 138 currencies. The platform, used for anonymous price discovery and execution, is considered the interbank primary market forEUR/USD, USD/JPY, EUR/JPY, USD/CHF, EUR/CHF and USD/CNH. EBS Markets was considered innovative; however, today, it runs on an aging technology stack. This comparison is heightened when viewed against CME’s modern software stack and updated SBE gateways.
CME finally announced that EBS would integrate EBS Market onto CME Globex. Simultaneously, CME announced that they would be updating EBS Ultra, its bilateral direct-dealing product.
The new CME Globex-EBS API includes plenty of positive features that may require time to understand. On the market data side, spread and amount views have been removed; Paid/Given messages have been replaced by trade summary messages. There is now a uniform number of price levels across instruments, and update intervals reduced to 50ms. On the trading side, there is no limit on active orders, and there is an increased messaging throughput over a smaller rolling window consistent with other CME Group Markets. Multiple Trader IDs (GUS) are allowed per session under a Floor Code (GFID), with the ability to self-match with single step trade confirmations. For the developers, the CME AutoCert+ environment allows for more direct lab connections and faster testing turnaround.
While change is required to move forward, change has its cost. Migration can be expensive, especially with many updates needed to facilitate features such as software and physical connections. Customers are worried that they will not be able to migrate due to ambitious timelines, complex changes and the size of projects.
What to expect?
We were all used to the complexity of EBS Markets’ legacy connectivity. There were three independent matching locations New York (NY4), London (LD4) and Tokyo (TY3). Customers would connect to an i-Cross hosted server in the matching location of their choosing and participate first in the local liquidity pool, and then globally if not locally matched.
This will look completely different in the new EBS Market. Spot (Majors) and Metals Matching will take place in New York (NY5), while Scandis, EM and ON/OFF SEF NDFs will be matched in London (LD4.2). Customers looking for the lowest latency will now connect via a G-Link. Those who don’t require the fastest connections can go with the CME Globex Hub or EConnect. These are Points of Presence (POP) with lines to the matching engine; EConnect is in New York and New Jersey, and CME Globex Hub is in the UK, Hong Kong, Seoul, Singapore and Tokyo. Other global access POPs will also be available.
After deciding on the physical connection, customers will decide between using the Convenience Gateway (CGW) or the Market Segment Gateway (MSGW). Choosing which one will depend on latency and location requirements. MSGW is a direct access to the local matching engine, while CGW has access to both matching engines. CGW takes away routing complexity for the client but at a latency penalty. CME suggests that, given the batching intervals, this is not an issue. However, depending on the client’s business, it is important to understand the impact of these interactions.
The number of ways to connect can be overwhelming. Difficult decisions include understanding optimal latency, configuration, complexity, and costs. Trading clients, typically unclear with their connectivity options, will have to procure dedicated circuits as part of the migration to connect to the new infrastructure. The new model allows customers to operate without multiple co-location centers. The Convenience Gateway and the various POPs makes order routing easier. Despite this, the architecture is more complex and includes potential latency penalties arising from the CGW. All the trade-offs and benefits must be carefully considered.
The biggest change in the migration is in EBS Markets protocol. EBS Markets is transitioning its Order Entry Gateways from FIX Protocol to SBE Binary Protocol, leveraging their Globex Trading Platform. The migration means trading applications will require customized coding to CME’s SBE interface rather than the standard FIX protocols common in the FX market. The migration also comes with a number of changes in functionality.
The CME has created a completely refreshed way of FX session handling with sequence messages overloaded as heartbeat messages, gap fills, and test requests. In the CME environment there are customized workflows that exist for how the session is established and maintained. There is an initialization of session (Negotiate Session) followed by Binding (Establish Session). During the initialization, a UUID is generated which must be maintained through the session for the whole week.
CME has also introduced the MinimumQuoteLife, indicating the minimum order time before the amend/cancel will be accepted. This feature is enabled for certain instruments and not others. Based on if this is enabled, CME send Pending Replace/Pending Cancel messages for the order lifecycle workflow.
SecurityID is opted above currency pairs. To handle this, a mapping from currency pair to SecurityID must be maintained. Solutions such as MarketFactory can normalize this for clients, enabling standard currency pairs.
Other changes include replacing Paid/Given with a trade summary message, sessions sharing between Trader IDs, removal of the active order limit, increase in the message throughput, more control over Self-Match Prevention and In-Flight Mitigation allowing for matching inside a firm.
While this comes at a cost of increased complexity, potential pain points for integration into systems, and a large learning curve to implement for FX-centric development teams, these changes add serious value to clients.
How to Migrate?
For EBS customers who lack resources for large scale connectivity migrations, this will be difficult. Using a third party can help greatly. Third party connectivity technology providers will be prioritizing this migration both for the software connectivity and the physical networking. They will be doing this work on behalf of multiple clients and should become subject matter experts.
After this migration is completed, customers should start preparing for Reuters’ migration to its new platform coming in 2022.