Quality of execution comparison between FX Global Code signatory and Non-Code signatory liquidity providers across Euronext FX


Nb of pages: 27
Date of publication: 30 November 2022
Authors: Paul Besson, Head of Quantitative Research and Mehdi-Lou Pigeard, Quant Research Analyst

FX Global Code/Non-Code Assessment - Let Data Drive your Decision

Quality of execution comparison between FX Global Code signatory and Non-Code signatory liquidity providers across Euronext FX

In this paper, we compare the Spot FX liquidity on the Euronext FX and Euronext Markets Singapore platforms (together, Euronext FX) between liquidity providers that have signed up to the FX Global Code (Code makers) versus liquidity providers that have not signed up to the Code (Non-Code makers). Based on trades executed on Euronext FX, Code makers overall bring better quality of execution than Non-Code makers. Nevertheless, the analysis also shows that in 25% of cases, Non-Code makers improve the quality of the liquidity on Euronext FX compared to Code makers.

We first evidence that Non-Code makers account for 32% of the turnover on all crosses (see Table 2, p.5). We further show that no significant differences are observed between Code and Non-Code makers on a taker’s realised spread (see Table 3, p.7) and Markouts (Table 4 and Table 5, p.9). This dispels the preconception that Non-Code makers would display more leakage and larger Markouts.

We then show that Non-Code makers have a +12% higher rejection rate than Code makers (Table 6, p.11) on all crosses.

Lastly we evidence that Non-Code makers have a +0.12 bps larger expected slippage than Code makers (see Table 8 p.17) on all crosses. However, we further clearly show that in 25% of sessions, Non-Code makers have a better expected slippage compared to Code makers (see Table 8, p.17).

These conclusions support our view that, at this time, the most efficient response to the Code / Non-Code choice is for takers on our platforms to make a data driven decision regarding the make-up of their liquidity pool. To support this choice, we encourage our takers to perform an ongoing case-by-case assessment of their makers on Euronext FX.

Main questions on Code makers addressed

In light of the recent changes to the FX Global Code and increasing industry adherence, Euronext FX has taken a pragmatic stance, evaluating the pros and cons of its Code makers versus its Non-Code makers.

In this paper, we will provide answers to the following questions:

  • How does the liquidity brought by Non-Code makers compare to that brought by Code makers?
  • Are spreads higher with Non-Code makers compared to Code makers?
  • Is there more leakage when trading with Non-Code makers compared to Code makers?
  • Are Non-Code makers rejecting trades more often than Code makers? And at a worst timing?
  • How can we assess the benefits brought by a maker from the taker’s point of view: the expected slippage?
  • Are Non-Code makers worsening the taker’s slippage, on average? How often in this case?

To answer these questions we will study empirically the outcomes for a taker trading in anonymous sessions. We will measure from the taker point of view the consequences of trading with a Code maker or Non-Code maker.

Download the report

FX Global Code vs Non-Code Webinar

Watch the video of our Quant Research and FX teams explaining key results and answering a variety of quant, policy and liquidity management questions, to enable market participants to make data-driven choices.

  • Is there a measurable difference in the quality of execution between Code signatory and Non-Code signatory LPs? 
  • How did this research drive Euronext FX's latest policy decision around the Code?
  • What trends have we seen in Code adherence of market participants on the platform? 
  • And much more

Watch the webinar