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).