Hotspot Introduces New Provisory Liquidity Protocol

Hotspot has introduced a new Provisory Liquidity Protocol with access to Firm Liquidity and Non-Firm Liquidity.

Hotspot, an institutional FX market owned and operated by BATS Global Markets (BATS) as of March 2015, has introduced new standards for liquidity providers that qualify as Market Makers on Hotspot, according to a BATS statement.

The Hotspot market provides market participants with access to an amalgamation of Firm Liquidity and Non-Firm Liquidity – Firm Liquidity and orders may be provided by all Hotspot market participants, including approved Market Makers. Conversely, Non-Firm Liquidity can only be provided by approved Market Makers.

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The new standards for Hotspot’s liquidity providers is slated to include reduced timeframes for acting on Non-Firm Liquidity, as well as high targeted acceptance rates for such orders.

The Hotspot market prioritizes Firm Liquidity, given a system for weighing in price-time priority order, over Non-Firm Liquidity. Furthermore, Hotspot now also offers participants a choice with regard to accessing Non-Firm Liquidity, including a choice of Market Makers with whom to have dealings with.

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Regardless, all Market Makers must be approved to provide Non-Firm Liquidity and must continue to satisfy select Hotspot Market Maker obligations.

In particular, the following Hotspot Market Maker standards are slated to go into effect on July 5, 2015:

  • Tighter Timeframes for Action: Hotspot is reducing the timeframe under which Market Makers are required to act on their Non-Firm Liquidity to 100 milliseconds from 200 milliseconds.
  • 85% Targeted Acceptance Rates: Market Makers are expected to have an acceptance rate of at least 85% of the orders interacting with their Non-Firm Liquidity, to ensure the Hotspot market continues to provide exceptional fill rates and market quality.
  • $1 Million Minimum Quote Sizes: Market Makers must quote a minimum size of 1 million base currency units.

Finally, in order to be eligible to provide Non-Firm Liquidity, a Market Maker must trade an average daily volume (ADV) of $250 million or more aggregated across all market-making accounts.

According to Bill Goodbody, Jr., Senior Vice President, Foreign Exchange at BATS, in a recent statement on the standards, “We are constantly striving to ensure our customers experience the highest level of fulfillment and market quality on Hotspot. We believe that these new Market Maker standards will further increase fill rates and enhance market quality, creating an even more robust experience for our customers.”

Earlier this month, Hotspot reported its trading volumes for the month ending April 2015, which totaled $625.8 billion during the month. Moreover, ADV on the Electronic Communication Network (ECN) dropped by 10% in April, having reached only $28.4 billion.

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