e-Forex-Nov-23

FX on the Exchanges: Demand grows while work continues to launch new products.
FX ON EXCHANGES
“An increasing number of new participants, particularly from
the hedge fund and asset manager community, are looking
to access futures liquidity to solve margin and capital
challenges.”
Paul Houston
the robust liquidity and use of its
CLOB as a complement to the Block &
EFRP activity is vital for a good client
experience and trading efficiencies.
THE GROWTH OF BITCOIN FUTURES
US-based exchange operator Cboe Global Markets is
set to introduce trading in margin futures on bitcoin
(BTC) and ether (ETH) in January 2024. The trading
and clearing will be handled by Cboe Digital, the
exchange group’s virtual assets subsidiary which was
given permission by the Commodity Futures Trading
Commission in June to offer margined crypto futures.
Margined trading allows investors to post a percentage
of their total position before trading, as opposed to
fully collateralised futures contracts. According to the
exchange, it is the first time a digitally-native exchange
in the US has offered such a product.
Cboe also claims to have the support of several trading
firms, both traditional and crypto-focused, such as
StoneX Financial, Cumberland DRW, Jump Trading
Group, Marex and Wedbush. Cboe Digital president
The firm, robust liquidity in the CLOB
is available on a truly all-to-all credit
agnostic basis which combines with a
huge ecosystem of over 90,000 traders
to provide benefits such as zero reject
rates and the ability to trade passively.
In 2022, almost two-thirds (63.1%) of
hedge fund and asset manager volume
was traded passively in CME FX futures
and 70.4% of volume was traded
passively in CME FX options. Group
Liquidity is more than just volume
though, says CME Group, citing reject
rates, market impact, the ability to trade
passively and the diversity of the trading
ecosystem as “hugely important”
John Palmer described the development as a “significant
milestone” for the company. “We believe derivatives will
foster additional liquidity and hedging opportunities
in crypto and represent the next critical step in this
market’s continued growth,” he said.
The move has also been welcomed by a number of
trading firms. Chris Zuehlke, global head of Cumberland
factors for traders. Furthermore, CME
Group states that its use of CLOBs
means that there is diversity of users,
zero reject rates and the ability to trade
passively. In 2022, almost two-thirds
(63.1%) of hedge fund and asset
manager volume was traded passively
in FX futures and 70.4% of volume was
traded passively in FX options.
According to Paul Houston, global head
of FX products at CME Group, many
of its customers have long recognised
the liquidity benefits of CME FX futures
as a complement to OTC activity. The
difference in 2023 is that there is now
the same recognition from the buyside.
“An increasing number of new
participants, particularly from the hedge
fund and asset manager community,
are looking to access futures liquidity to
solve margin and capital challenges,”
said Houston.
DRW, said that “providing secure access to regulated
futures markets is key to maturing this nascent asset
class and enabling broader institutional participation”.
Thomas Texier, head of clearing at Marex said
“there is customer demand for these products” and
“Cboe Digital’s margin futures launch will help bring
competitive technology and innovative solutions to
regulated markets”.
And while this may be true, the majority of institutional
interest in the US remains focused on the prospect of
a crypto spot ETF being approved by the Securities and
Exchanges Commission (SEC).
BlackRock is the latest asset manager to file with the SEC
for such an ETF and in its application the asset manager
highlighted a perceived contradiction between the
regulatory treatment of crypto futures and crypto spot
ETFs.
“Given that the Commission has approved ETFs that
offer exposure to ETH futures, which themselves are
priced based on the underlying spot ETH market,
[BlackRock] believes that the Commission must also
approve ETFs that offer exposure to spot ETH,” states the
BlackRock application.
52 NOVEMBER 2023 e-FOREX