e-Forex-Nov-23

FX on the Exchanges: Demand grows while work continues to launch new products.
“By using on-exchange trading for those assets and
instruments with low margins and high volumes, it allows
those banks to focus on the high-value, high-touch and highreturn
instruments and assets,”
“Regulations continue to foster more
efficiency in the FX market. But you
also have to plug into traders’ decisionmaking
and factor that into product
development.”
the platform and to focus on areas
where we can provide a point of
GROWING BUY-SIDE
ADOPTION
difference.”
As of July 2023, the CME Group FX
futures and options market trades
Over the previous two years, Eurex
an average notional daily volume of
has sought to develop cross-border
US$81.8 billion, as opposed to $76
agreements with other exchanges
billion in 2021. According to CME
to expand its international footprint,
Group this increase is down to growing
notably the Korea Exchange and an
buy-side adoption of cleared FX
agreement struck in 2021 to list KOSPI
products. It is also an indication that
Lee Bartholomew
and USD/KRW derivations at Eurex,
thereby expanding its presence in the
more investors are using exchangetraded
derivatives as an alternative
Asia market and also adding more
to OTC products to optimise funding
instruments with low margins and high
liquidity and extending trading hours.
and the capital impacts of Basel II’s
volumes, it allows those banks to focus
implementation of SA-CCR and
FX ON EXCHANGES
on the high-value, high-touch and highreturn
instruments and assets,” he says.
The reasons for the greater comfort
with on-exchange trading are threefold,
says Bartholomew. The sell-side
has figured out how to embed and
optimise technology within their
setup to accommodate structured
“We have always been open to strategic
alliances,” says Bartholomew. “We want
to be the incumbent destination for
euro crosses, for the Scandi currencies
and for other instruments or currencies
where we have a strong presence. We
have an expanding client base in Asia
but we are not looking to compete
directly with Singapore Exchange (SGX).
Uncleared Margin Rules (UMR). YTD
2023, CME Group has cleared 98.5%
of the global volumes in EUR/USD
FX futures according to FIA data; the
remaining 1.5% was shared across
another 5-10 venues that also offer the
contract.
However, there is also a common
themes and products. “All the verticals
There is no point trying to break into
misconception, states CME Group , as
are integrated,” says Bartholomew.
new markets if we don’t possess a
regards liquidity and the belief that FX
“Electronic trading is more prevalent in
distinct advantage.”
futures are not liquid enough to trade
listed markets and that makes it easier
Bartholomew says he has spent some
on exchange and are better traded OTC.
to integrate workflows. And there is
time on making the Eurex message
“While there is clearly a role for both
more comfort with the plug and play
clearer when it comes to listed FX. “It
futures and OTC venues in liquidity
model which allows sell-side banks to
is still a very nascent business and you
provision, it is useful to place the CME
automate more of their operations and
cannot be all things to all people. It is
FX futures market within the context
to focus more on high-touch trades.”
about simplifying our overall strategy.
of the leading OTC FX venues, using
We feel there are two markets where
traded volume as a proxy for liquidity,”
Another trend is that ETFs have
we want to be global and where we
they say.
become more prevalent and they
feel we can create the best value for the
are becoming multi-currency which
end customer – credit and FX.
The exchange cites a working paper
creates a rebalancing risk. “The
published by the Bank of International
ecosystem of listed products is evolving
“Basis trading is something people
Settlements (BIS) earlier this year which
and people are working out how to
want to do – we see that in portfolio
found that “a growing number of
monetise aspects of that market,”
trading - ETFs in the US and FX and
market participants of all types now
says Bartholomew. “We try to work
OTC and the listed worlds and regularly
seem to consider currency futures
collectively and collaboratively with
trade basis. If you are able to create
traded on the CME as at least a close
market participants to deal with
products that are flexible, you can then
cousin of the primary [spot FX] central
evolving trends. We are trying to grow
look at what service enhancements
limit order book (CLOB) venues”.
the number of apps that we have on
you can add,” says Bartholomew.
Furthermore, CME Group states that
50 NOVEMBER 2023 e-FOREX