Tackling the liquidity crisis with CMC Markets

The harsh reality is, that in the absence of good liquidity, markets will be far from efficient. The client experience will be poor and counterparties are going to be working even harder to find profitability.

First Published: e-Forex Magazine 79 / ALGOFX LAB / December, 2017

With that in mind, the major players in the retail FX and CFD market have for many years been turning their attention to how they can improve access to liquidity - CMC Markets is certainly no stranger to this campaign. 

Having meaningful access to liquidity is certainly no new phenomena but existing problems were further highlighted in the wake of the Swiss National Bank’s removal of the EUR/CHF peg in early 2015. This resulted in a number of prime brokers backing out of the market altogether, whilst those who remained took a string of business decisions which ultimately limited the number of counterparties they were willing to work with. 

API Direct

So exactly what is CMC Markets doing in this space? There are two key operations in play - the traditional source of liquidity known as the OTC API or API Direct, which was designed for and has been deployed by institutional partners around the globe. This offers counterparties access to the liquidity generated off the back of the company’s own significant internal flows of business. The prospect of consistent pricing and market depth across more than 350 different instruments including FX pairs as well as Index, Commodity and Treasury CFDs - all from a single source - gives those institutional clients the confidence to know that they are in turn providing a market-leading, multi-asset solution to their own clients. 

FX Prime

API Direct is complemented by the new FX Prime product, which was launched early in 2017 to open up CMC Markets’ relationships with other liquidity providers - including Prime Brokers - for those counterparties wanting to receive institutional grade FX pricing. In other words, institutions can readily tap into pricing from a whole pool of tier one liquidity providers and whilst that’s not an insurmountable challenge to face, sourcing from a single, reputable entity certainly provides a significant element of convenience. CMC Markets leverages its own balance sheet to facilitate this, and CMC Markets’ partners can use a proprietary, institutional trading user interface, along with a comprehensive suite of reporting and analysis tools, to manage their own positions. 

CMC Markets Webtrading Client
CMC Markets Webtrading Client

On top of these consistently stable routes to liquidity, CMC Markets also provides a great deal of visibility over the real time level of liquidity that’s available, regardless of the solution the counterparties elect to use. API Direct offers certainty over the market depth for any specific instrument as well as the knowledge that counterparties are getting access to the most consistent pricing that’s on offer - what you see is what you get. Contrast this with the FX Prime proposition and prices can at times be even more competitive, although the trade-off here is the resulting fluctuations in market depth. Once again though, counterparties have the ability to select the solution that’s going best meet their needs - the choice isn’t between ‘take it’ or ‘leave it’.  What’s more, CMC Markets offers all its partners the flexibility to conduct their chosen integration rapidly, either directly using an industry standard FIX API, or by routing through their existing third party fintech solution providers.

By using this two track approach, the company has been able to make meaningful progress in helping address the liquidity problem. Bolstered by the fact CMC Markets is a multi-million-pound entity with a premium listing on the London Stock Exchange to boot, the ability to connect liquidity from many high profile financial institutions or even the company itself to smaller FX houses is just one factor that continues to drive growth in the company’s institutional business. 

CMC Prime Derivatives

And the quest for better liquidity doesn’t stop there either, with CMC Markets already working on the next development. CMC Prime Derivatives will provide a new, dedicated platform which will over time expand to allow institutional clients access to thousands of global single stock CFDs and listed derivatives as the company responds to client demands for access to an ever increasing list of assets. The challenge clearly extends well beyond the major FX pairs.

Financial markets have always been incredibly capable of responding to change - and the quest to ensure there’s good access to liquidity has proven to be no different. The Prime Brokerage divisions of some of the world’s biggest banks may have taken a step back, but a number of the established retail players - including CMC Markets - have been quick to come forward with a solution.