Thomson Reuters is set to tighten the rules of engagement for its forex trading platform in a bid to discourage attempts at market manipulation.

The group will announce on Tuesday a new matching rule book designed to raise the bar on expected trading behaviour as it seeks to combat market abuse such as the “flashing” of prices without any real interest to trade.

Forex Trading

It comes at a time of intense public and regulatory scrutiny of the forex market after more than a dozen authorities globally have launched investigations into the alleged rigging of crucial price benchmarks such as the WM/Reuters 4pm fix.

But the rule-changes are not directly connected to the probe as they were devised in a consultation with clients that was started in April last year.

Its market consultation follows measures taken by EBS, a rival currency trading platform owned by ICAP, to curb predatory practices of high-frequency traders on its venue. Although EBS lost some business, it was replaced by other institutions returning to the venue.

EBS widened the spread of pricing on some of its currency pairs and raised the ratio of quotes traders were allowed to send before they were required to buy. Collectively the action resulted in fewer “flash” orders – automatic trades made at lightning speeds – at the top of the order book while trades further down the order book were being filled.

Thomson Reuters’ planned measures include a tightening of the minimum quote life for several currencies to give counterparties a fair chance to trade on these orders. It will also more introduce a tightly defined set of trading rules intended to reduce the use of techniques that could violate market conduct rules.

The Anglo-Canadian group plans to police these conventions by bringing in sanctions such as limiting a user’s access to the platform.

“Through a combination of platform controls and behavioural rules, the new updated rule book will seek to enhance liquidity for all clients trading on Thomson Reuters Matching,” said Phil Weisberg, global head of FX, Thomson Reuters.

Article source: Financial Times. Find full article here.

Gary Beal