Markus-Alexander Flesch, Market Development, Eurex
What is Eurex Improve and when did it launch?
Markus-Alexander Flesch: Eurex Improve is a client flow facilitation service that we launched for all equity options and equity index options in February this year. It provides our members with a tool that guarantees their buy-side clients full execution of their orders below minimum block trade sizes at the best price available in the Eurex order book.
The overall aim of Eurex Improve is to generate additional trading volumes in the order book. It does so by delivering tangible benefits to all parties or stakeholders involved in a transaction, though arguably buy-side clients are the main beneficiaries of the service.
How does the Eurex Improve mechanism work?
MF: There’s a simple three-step process for the Eurex Improve matching process; initiation, price improvement and then execution.
It begins when a buy-side client contacts their bank or broker with an order for execution in the Eurex order book. Using Eurex Improve, the bank or broker can now not only guarantee their buy-side client full execution of their order in the order book, but also commit to the client at what reserve price their order will be executed. Eurex Improve may lead to an even more advantageous price for the buy-side client than the temporarily reserved price. Once the details of the transaction have been agreed, two orders are entered in the T7 trading system which together form the ‘Improve request’. Notably, this negotiation and subsequent initiation of an Eurex Improve request may also take place implicitly as part of an execution algorithm.
As soon as the Improve request has been received by the exchange, all members of Eurex are informed about the product, price and quantity of the imminent Eurex Improve execution. Imminent Improve executions are announced to members via the regular market data feed, and it’s at this point that the price improvement period is triggered and continues for 150 milliseconds.
All trading participants, apart from the initiating trader, then have the possibility to submit additional orders to the order book as a means of participating in the execution of the client order. During the price improvement window, regular order book trading continues and any resting order, that was entered before the Improve request was initiated, will maintain its priority.
With more competitive orders, the client is guaranteed the best available price and price picture. In cases where competitive orders on the opposite side of the client are provided, the execution of the client order can be split across price levels and counterparts in order to ensure the best possible execution of the order. If there are no additional orders provided during the price improvement phase, the buy-side client is automatically guaranteed full execution against the order from the initiating bank or broker, so it really is a win-win scenario for everyone.
Take us through some of the benefits that Eurex Improve can deliver
MF: Eurex Improve really adds value to the overall market structure. There are attractive benefits for all participants, from the buy-side client to the bank or broker, but also for liquidity providers.
Overall, the buy-side client gains the largest benefit in that they are guaranteed execution of their orders. As Eurex Improve is fully integrated in our order book, the buy-side client also benefits from the order book’s full pricing competition, ultimately ensuring the best price available across all members of the exchange. On the other hand, for our bank or broker members, Eurex Improve provides an effective tool to generate additional client flow and trading volumes, by guaranteeing full execution of orders below minimum block trade sizes.
And, last but not least, liquidity providers – or, in fact, all other trading participants – are given an opportunity to engage with client flow that otherwise might have been executed without their participation, by reacting to an Improve request.
Finally, the entire market benefits from and through this functionality as the greater new volume increases liquidity and, therefore, decreases the cost of trading.
How has Eurex Improve been received by market participants since it launched?
MF: Our members and their buy-side clients have been impressed with the advantages that Eurex Improve can offer, particularly in terms of ensuring immediate execution at most attractive prices.
Despite the extended periods of high market volatility earlier this year not providing for an ideal environment to encourage market participants to try out new functionalities, from February when Eurex Improve was rolled out until mid-October this year, more than 10,500 Improve requests were executed with over 194,000 lots traded. These numbers highlight the significant engagement we have seen with the tool so far. We are certain that more and more buy-side clients take advantage of the benefits of Eurex Improve.
