LMAX Exchange is the first MTF for FX, regulated by the FCA. Established to deliver the benefits of exchange quality execution to both buy-side and sell-side trading institutions, LMAX Exchange brings market participants together in an anonymous, order-driven and fully transparent environment
With the incoming regulatory environment favouring centrally cleared products over OTC instruments Frances Faulds looks at how the exchanges are gearing up for continued growth.
This year CME Group celebrates 40 years of trading financial futures beginning with foreign currency contracts in 1972. It has the largest regulated marketplace in the world for FX with US$121 billion dollars traded in average daily volume with US$250 billion of open interest residing at the CME Group Clearing House with growth rates over the last five to six years for listed FX that has significantly outperformed the broader OTC FX market. Derek Sammann, global head of FX & interest rate products at the CME Group speaks to e-Forex about the firms plans to deliver expanded FX trading and clearing services.
While volumes continue to grow, the worlds derivatives exchanges are busy tweaking their FX contracts and launching new instruments in the light of the current regulatory debate over mandatory requirements for clearing bilaterally traded OTC contracts, as well as the general push to get as many of the standard OTC contracts traded on exchanges as possible.
While there has been much focus on the regulatory pressure to push FX towards regulated exchanges to mitigate central counterparty risk and eradicate highly leveraged unprotected trading in the retail market, exchanges around the world are also benefiting from the natural evolution and growth of the FX market. The increasing size of that market, along with the development of different instruments and products to cater for its various segments, have both contributed to the evolution of trading FX on exchanges that were originally built around equities and interest rate derivatives. As demand for exchange-traded FX is set to grow Frances Maguire looks at the products and technology that the leading exchanges are developing to attract new FX business.
The financial crisis brought with it unprecedented volatility and credit concerns that are still having their effects on all global markets, including FX namely in the form of the widespread financial reforms that are now underway. Aside from the recent flight to quality that exchanges experienced throughout the crisis as credit lines and liquidity suddenly dried up, the clear message from the G10 is that, by 2012, a very different landscape will emerge, where as much vanilla business as possible will be transacted on regulated exchanges, or at least cleared through a central counterparty. Furthermore, increased collateralisation requirements will be laid out by the regulators for those instruments that continue to be traded over-the-counter (OTC).
The world's futures exchanges continue to make in-roads into the biggest OTC market in the world and with recent regulatory discussions on the need for greater use of centrally cleared products, currency trading innovation continues to gather pace within the exchanges.
The drive by trading houses and boutiques to secure ultra-low latency solutions to FX market venues and their matching engines has been cranked up of late, with deployment of proximity hosting being a must-have offering. Roger Aitken examines the state of play in proximity hosting and co-location services, semantics aside.
FX trading has traditionally been conducted over interbank and inter dealer networks. But in recent years, with the emergence of exchange based electronic trading technologies and the benefits of the centralized clearing and risk management, traditional derivatives exchanges (ex: CME, ISE, ICE Futures, USFE, and NASDAQ OMX PHLX) are becoming significant market places for exchange based FX derivatives.
When it comes to exchange connectivity it really is a case of horses for courses as there are a myriad connectivity options available to traders, depending on their type of business and how much they are prepared to invest to lower latency.
While the recent financial turmoil continues to reshape the financial markets, indications are that counterparty risk will come under the spotlight, along with the need for greater transparency. For these reasons, it is expected there will be trend away from over-the-counter (OTC) products towards standardised exchange-traded listed products that bring with them the benefits of central clearing to mitigate risk counterparty risk and greater automation that lowers operational risk.
Are exchange traded FX currency products set for new growth? Frances Maguire looks at what investment strategies exchange-traded currency futures and options offer retail investors looking to diversify and enhance their trading strategies.
Frances Maguire looks at whether the exchanges are succeeding in attracting both retail investors and quant funds to trade FX on-exchange.
Frances Maguire looks at the changing landscape of e-trading in exchange-traded currency options and what the exchanges are doing to attract new customers and win volume from the OTC market.
Paul Ronan and Nicholas Hodder examine the challenges that need to be addressed when including new liquidity Pools such as the CME in your business model.
Tina Lemieux examines why hedge funds, CTAs and currency overlay managers are increasingly attracted to the competitiveness and advantages of CME FX.
Rick Sears examines the potential impact of bringing the two largest pools of buyers and sellers into one unified trading environment.