Across the market, participants are keen for a term rate anchored in €STR markets, said the firm.

The rates will be published in tenors of one, three, six, and 12 months and are based on CME Group’s liquid €STR futures and OTC swap market data. 

“We are introducing €STR term rates in response to client demand for a more robust and transparent term rate for the growing €STR ecosystem,” said Max Ruscher, head of benchmark services, CME Group. 

“Building on the increasing liquidity in our €STR futures market and OTC trade data, our term rate is based on comprehensive derivatives transactions data that will help clients build lending and fixed income products.” 

Read more: CME Group set to launch €STR options in Q1 2024

Since the launch in October 2022, more than 5 million €STR futures contracts have been, said the firm.

The post CME Group to introduce €STR term rates appeared first on The TRADE.

The new offering will allow buy-side participants to use existing OTC workflows on Digital Vega’s multi-bank platform Medusa to request quotes and trade blocks of FX options on futures. 

“Enabling customers to negotiate and trade risk-transfer blocks via Digital Vega’s Medusa platform is an exciting development in the electronification of the FX options market,” said Chris Povey, executive director and head of FX options at CME Group. 

“This partnership lowers the barriers to entry for buy-side clients looking to gain the margin and operational benefits of our centrally cleared FX options by allowing them to use existing OTC workflows and lean on OTC relationships. In addition, clients could gain access to new liquidity given there is no requirement for bilateral credit relationships.”

Digital Vega’s connectivity, GUI and workflow technology will be leveraged by users to request prices in CME Group’s centrally cleared FX options from multiple liquidity providers in competition. 

These options can be more margin efficient versus traditional OTC options for those subject to uncleared margin rules, claimed the two firms in a statement.

Read more: UMR Phase 6: The time to prepare is yesterday

 “Our new service provides liquidity access for more clients and market makers to trade with each other without having to establish new bilateral credit agreements, which we expect will result in increased liquidity for the market as a whole,” said Mark Suter, executive chairman and co-founder at Digital Vega.

“We are encouraging clients to onboard to this service now so that they can fully test the system before they begin trading.”

The post Digital Vega and CME Group launch new FX options block trading service appeared first on The TRADE.

Giovanni Vicioso

The move is set to leverage the opportunities of a Friday expiry which allows these contracts to closely track the spot price of bitcoin. In addition, the offering is set to help investors mitigate weekend price moves. 

Giovanni Vicioso, global head of cryptocurrency products at CME Group, said: “With these weekly expiring smaller-sized contracts, investors of all sizes – from institutions to sophisticated, active retail traders – will be able to more accurately fine-tune their bitcoin exposure on a regulated exchange.

“By settling to the BRRNY, the benchmark used by leading spot bitcoin ETFs, traders will also benefit from growing liquidity and the ability to more efficiently capture market moves during US hours.”

The new weekly futures contracts are sized at one fiftieth of a bitcoin and will be cash settled to the CME CF Bitcoin Reference Rate New York Variant (BRRNY) at 4pm EDT every Friday.

According to CME Group, a new BFF contract will be listed every Thursday at 6pm EDT/EST for a Friday trade date. Market participants will be able to trade the nearest two Fridays at any given point.

“We are pleased to support CME Group’s launch of these new weekly expiring bitcoin futures contracts and further expand the low-cost products available to our clients,” asserted Steve Sanders, EVP of marketing and product development at Interactive Brokers. 

“With a shorter duration and smaller-sized contract, Bitcoin Friday futures will offer our active trader and institutional investor clients a flexible and cost-effective new way to manage their bitcoin exposure in a transparent market.”

The post CME Group to launch weekly futures contracts next month appeared first on The TRADE.

Terry Duffy

The plan is to build a new private Google Cloud region to support CME Group’s global trading, offering derivatives traders access to “cloud-based, ultra-low-latency networking and high-performance computing”.

According to the businesses the specialised platform for capital markets is an industry first, with development already underway beginning with customer testing in the Dallas Google Cloud region. Ultimately, this will become the disaster recovery facility for the Illinois offering. 

Construction is slated for later this year, with CME Group having already confirmed to its clients that an 18-month notice will be provided prior to the exchange moving its markets to the new platform.

Speaking to The TRADE earlier this year, Rohit Bhat, Google Cloud’s managing director for capital markets, exchanges, and digital assets, explained that one of Google’s key focus points was around these deeper collaborations with institutions that represent the value chain of capital markets, with the final aim of playing a part in the future development of the industry.

“There’s a real opportunity to move the needle on how these markets will evolve over the next decade or even next two decades […] Our approach is truly around collaborating directly with the players that can make a difference in this particular space of financial services. 
 
“[…] We’re here not for the value that’s going to come in 2024 only. Our investments are thoughtful enough to go farther out to multi decade.”

Read more: As cloud adoption across the market continues to rise, is the shift of liquidity itself next to follow?

The Chicago location is set to allow CME Group’s clients to utilise existing connectivity options for other global markets.

Clients can decide whether to opt for self-managed infrastructure in the co-location facility or Google Cloud’s specialised infrastructure-as-a-service offering. Both have equal network latency to the exchange.

Users are set to benefit from expanded flexibility, strengthened operational efficiencies, and increased access to cloud services, and artificial intelligence (AI) capabilities.

Terry Duffy, CME Group chair and chief executive, said: “Google Cloud’s new specialised platform will extend the benefits we can provide to our clients through next-generation cloud technology, expanded access and efficiencies, a broader range of customised connectivity options, and faster product development, with minimal disruption to their current operations.”

CME Group and Google Cloud have been in partnership since 2021, with recent work having been made to enhance CME Group’s cloud-based data platform and migration of critical clearing applications to the cloud.

The businesses struck a 10-year deal in November 2021 to partner and move the exchange’s trading systems to the cloud (with Google at the same time, separately, investing a billion dollars in the business).

“Our latest milestone with CME Group builds on our shared goal to accelerate CME’s move to the cloud and innovate capital markets infrastructure worldwide,” asserted Thomas Kurian, chief executive of Google Cloud.

“Through our collaboration, we’re harnessing the best of cloud computing, data analytics, and AI, while respecting the existing custom hardware requirements of market participants to bring low latency, deterministic, and scalable trading environments to CME Group customers and the broader financial markets.”

Recent times have seen a swathe of investments from major cloud providers into leading exchanges. Over the last three to four years significant investments have been made, and long-term partnerships forged across the market.

In 2020, the Singapore Exchange (SGX) completed a proof of concept with Amazon to build a cloud-native exchange, whilst Deutsche Bank signed an innovation partnership with Google Cloud the same year. Following this, in November 2021, Amazon (AWS) and Nasdaq signed a multi-year agreement aimed at jointly fostering a new cloud-based market infrastructure and migrating every exchange to the cloud by 2028.

More recently, Microsoft and the London Stock Exchange launched a 10-year strategic partnership back in December 2022 also focused on developing cloud infrastructure solutions, whilst in February last year, Google Cloud officially became Deutsche Börse Groups’ preferred cloud partner for the next decade.

The post CME Group expands Google Cloud partnership to launch new futures and options platform appeared first on The TRADE.

US corporate bonds began trading yesterday, 20 May, with the remaining products expected to be live by the end of next month. CME Group’s US credit futures will begin trading on 17 June.

Adding US Euro and Sterling corporate bonds and MBS on BrokerTec Quote creates a fuller product suite with US and Euro repo on all major government bonds that currently trade on the platform.

From launch, clients will have the ability to orchestrate their risk management and fixed income financing needs from one platform.

BrokerTec’s dealer-to-dealer (D2D) central limit order book (CLOB) repo platform transacted $600 billion average daily notional volume (ADNV) of repo last year.

“In today’s dynamic and complex financial landscape, navigating the fixed income markets for mortgages and credit presents unique challenges for clients who need sophisticated tools to manage their exposure and achieve their financing needs,” said John Edwards, global head of BrokerTec.

“We have been actively expanding BrokerTec Quote to cover repo on all major government bond markets in recent years. The addition of corporate bonds and MBS is a natural complement to our core offering and follows significant demand from clients.”

The post CME Group launches corporate bonds and mortgage-backed securities on BrokerTec Quote trading platform appeared first on The TRADE.

The derivatives marketplace initially launched the first €STR futures on 31 October 2022, as a complement to SOFR futures.

Order book depth was recently increased by CME Group by 79%, alongside reducing bid-ask spreads by 31% and facilitating the final settlement of the €STR market’s largest ever futures expiration totalling over 14,000 contracts last month.

“Our new €STR options will help clients more precisely manage their risk as expectations around European interest rate decisions continue to shift,” said Mark Rogerson, EMEA head of interest rate products at CME Group.

“This launch is the next step in the development of our robust €STR marketplace and builds on the growing liquidity and participation in our €STR futures.”

Last month, CME Group revealed plans to expand its interest rate complex with the launch of US corporate bond index futures in summer 2024, subject to regulatory review.

The new futures contracts will be based on the Bloomberg US corporate index and the Bloomberg US high yield very liquid index.

The post CME Group to launch €STR options next month appeared first on The TRADE.

Speaking to The TRADE at the TradeTech FX European conference in September, heads of trading said they intended to focus their attention on understanding how to best develop and adopt algorithmic offerings tailored to these instruments.

It is therefore unsurprising that the electronification of NDFs is being discussed on the main stage at this year’s TradeTech FX US conference in Miami. Key questions around market depth, liquidity and initiatives launched by institutions and vendors to innovate in this space in light of new demand are set to be explored.

NDFs are cash settled short term forwards – the notional amount is never exchanged – earning itself the title of non-delivered. The instruments can require significant documentation and mediation from both parties involved and historically, they have been more of a side-line market in the wider foreign exchange sphere, making them less liquid and less transparent, and also making it far easier to move markets.

It is these workflow factors combined that have meant NDFs have been slower to automate and algorithmically trade when compared against other FX instruments. There is a limited number of participants eager to trade in size algorithmically when comparing NDFs to the spot markets for example. Instead, many institutions still opt to trade by voice.

Read more – LSEG Singapore NDF matching platform goes live

“The limited number of market participants that have significant transaction sizes hinders the widespread use of NDF algorithms,” APG Asset Management’s senior trader Sunil Patil tells The TRADE. “While algorithms can be effective for smaller sizes, the maximum benefits are typically realised with larger transaction volumes. Notably, this dynamic shifts for systematic-only funds, where considerations and advantages associated with NDF algorithms may differ.”

NDFs have, until recently, represented a relatively small segment of the FX markets. The buy-side has subsequently chosen to opt for reliable counterparty relationships to maintain presence and research in different regions and has resulted in a muted desire for electronification, until recently. However, in the advent of market developments, such as Mifid II research unbundling rules in Europe, a greater number of non-bank participants have begun entering this landscape.

“Recent trends highlight an increasing demand from asset managers, fast money, and quant funds, expediting the transition toward electronification in NDF markets,” says Patil. “As liquidity improves, standardisation increases, and more market participants express interest, the eventual mainstream adoption of algo usage in NDFs becomes increasingly likely.”

Circumstances over the last few years have incentivised increased interest in NDFs trading across the buy-side. And while algorithmic adoption is by no means mainstream, the pace of growth in this market has been steady and slow.

Where there are volumes, automation will surely follow. Throughout the course of 2022, several regulatory deadlines came into play – namely the final phase of Uncleared Margin Rules (UMR) and the Standardised Approach for Counterparty Credit Risk (SA-CCR) – which have pushed participants into the arms of NDF clearing in order to optimise balance sheets.

This shifting backdrop, paired with a general push for automation where possible – particularly to cut costs and boost performance on smaller orders – from the street has encouraged a wave of development across the sell-side as firms look to cater to new demand for NDF algo offerings.

In research published at the end of 2022, Worldwide Business Research (WBR) found that while only 8% of FX trading desks had already adopted NDF algo execution, an additional 27% said they were planning to implement them in the following six months. Nearly half of the respondents were also evaluating NDF algos with their counterparties, but said they had no immediate plans to adopt them, indicating potential for future growth.

Read more – CME Group to establish unified global NDF trading venue

Progress was slowed over the last few years due to market conditions. The volatility and rates backdrop seen throughout 2023 somewhat stunted the formerly projected growth in NDFs algos, MEAG’s senior trader Nicholas Nellis tells The TRADE. While firms such as MEAG use NDF algos already, and despite the number of institutions like them growing, banks have not yet seen the uptake of their new NDF algorithmic offerings that they had previously expected.

“For a while, a lot of people were trading NDFs to try and pick up carries, especially in the low rates environment,” says Nellis. “In this environment now, with more volatility and the ability to get decent returns elsewhere, people that are traditionally in those markets have probably stepped back. People are a lot more comfortable still trading voice on the NDF side.”

A key hurdle for the mainstream adoption of algorithms in NDF trading has historically been the lack of opportunity for traders to interact with liquidity on an order book – hindering market depth and transparency. Previously, there were few platforms dedicated to the trading of NDFs. But in recent months, market headlines have been littered with a string of announcements as platform providers and venues announce new ventures, which Nellis confirms has improved algo performance.

“There isn’t that much liquidity so trying to trade it electronically over a platform is not as easy. You can move markets quite quickly. In that space, spreads tend to be a lot wider when you trade electronically for some of these markets,” he explains. “But we’ve seen more players come into the electronic/ECN market. They’re trying to provide more liquidity. There’s been a change in algo performance at least with these additional venues in place. It just takes time.”

CME Group was the latest firm to make such an announcement, confirming in December last year that it had established a global unified NDF trading network. The trading venue is set to combine its two non-deliverable forward (NDF) liquidity pools on the EBS Market platform onto a single trading venue in October, subject to regulatory approval.

The move will bring market participants across regulatory jurisdictions into a unified global trading environment, which CME Group claims will enhance market efficiency and improve EBS’ role as a source of centralised liquidity and price discovery in NDFs.

“Amid continued fragmentation and rising complexity within the global FX market, the need for a unified, globally accessible primary trading venue in NDFs is greater than ever,” said Paul Houston, global head of FX products at CME Group, at the time of the announcement.

“Combining our two leading NDF trading platforms will improve access for participants around the world while expanding liquidity, improving price discovery and providing operational efficiencies for the marketplace.”

Earlier in 2023, Trading Technologies confirmed it was also due to set up a new foreign exchange unit in early 2024, with plans to extend its offering to include liquidity from major banks, alongside the expansion of the product set to include forwards, NDFs and swaps.

Asia focus

Central to the recent growth and evolution seen in the NDF markets is Asia. Many of the new initiatives announced of late have a link to the Asian markets – home to a huge chunk of the world’s global foreign exchange activity. The Asia NDF markets trade throughout the day, making them a useful way to access these markets outside of market hours in other regions, while an overlap with European trading hours makes them appealing to institutions attempting to facilitate transactions across time zones.

Asian markets were early adopters of electronic trading platforms for NDFs in comparison with other markets and the continent now contains some of the most traded NDF currencies in the world, namely in Korea, Taiwan, Singapore, India, and Indonesia, making it a popular destination for those looking to set up new ventures.

Singapore in particular has made a huge push into positioning itself as trading hub across several asset classes – in particular global FX – by creating a favourable regulatory environment for new platforms coming to market. The Singapore Exchange (SGX) acquired a 20% stake in institutional FX trading platform BidFX in 2019, going on to acquire the remaining 80% stake in the company from TradingScreen for $128 million in 2020.

Many of the recent new launches have subsequently been centred in the region. Among the recent initiatives is a new NDF matching platform based in Singapore, launched by the London Stock Exchange Group (LSEG) in November 2023. Based in Singapore, and with the backing of the Monetary Authority of Singapore (MAS), the platform is the first phase of LSEG’s plans to implement NDF, spot matching and streaming relationship venues in Asia.

“NDFs are a growing part of the FX market, with limited customer options when it comes to execution on an order book,” LSEG’s head of foreign exchange, Neill Penny, told The TRADE.

“As such, there has been clear interest from customers for us to support NDFs as part of matching. There is also a lot of interest from customers in the cleared execution part of the venue which should result in improved liquidity, more efficient use of credit, and reduced administrative overheads.”

In the same month, LMAX Group subsidiary, LMAX Exchange Singapore, was granted regulatory approval by the Monetary Authority of Singapore (MAS) to offer NDF trading in both Singapore and London. LMAX said the launch would allow its clients to hedge their FX exposure against non-convertible currencies on a central limit order book (CLOB) and that it would leave to more transparent price discovery, deeper liquidity and efficient market structure in NDFs trading.

With new players entering the market and new platforms launching each quarter, greater liquidity in the NDFs sphere is almost certainly set to spark greater algorithmic trading capabilities for those looking to execute more efficiently. Gaps still exist, namely around broken dates and how to aggregate NDF liquidity into one system, and as FX algo providers look to attract further adoption of their NDF strategies, they will need to offer increasingly sophisticated data analytics, algo execution and liquidity management tools to mitigate this.

“The primary approach for engaging with NDF algorithms currently involves initiating trades on a one-month or IMM date basis and subsequently rolling positions to align with preferred non-standard maturity dates. However, this method presents challenges in estimating the all-in price ex-ante, as opting for a more favourable spot rate may result in less favourable forward points, influenced by market makers’ positioning,” says Patil.

“We still opt for NDF algorithms in markets where liquidity supports larger trades. Currently for us, the overall percentage of NDF volume traded via algorithms remains relatively low, given the decent OTC liquidity with sharper spreads, making it the preferred method for the majority of NDF trading. However, I anticipate a shift in this scenario as more participants enter the market, leading to the evolution of NDF trading practices.”

With infrastructure building out globally to accommodate new interest in NDFs, greater appetite for more automation must surely follow. A lack of transparency historically has hindered NDF algorithmic progress, but with the prospect of order book trading on multiple new competing venues on the horizon, that could all be about to change.

“What you will also see – and you can see this with NDFs – is that less liquid products are going to become more transparent, and the more transparent they are the more trading you get. The more trading you have, the more automation you can drive into it,” says LSEG’s head of FX sell-side trading, Bart Joris.

The post NDFs trading: If you build platforms, the algos will follow appeared first on The TRADE.

The new futures contracts will be based on the Bloomberg US corporate index and the Bloomberg US high yield very liquid index.

The two indexes measure the performance of investment grade corporate bonds and a liquid, diversified component of the high yield corporate bond market, respectively.

“As corporate debt issuance continues to increase across sectors, market participants are looking for tools to help them navigate growing credit exposure,” said Agha Mirza, global head of rates and OTC products at CME Group.

“Our new US corporate bond index futures will bring clients the speed and precision they need to manage risk and pursue opportunities in the market, while gaining capital efficiencies through portfolio margining.” 

Watch now: CME Group on the evolving FX futures and options landscape

The new index futures will be available to trade on CME Globex and eligible for submission to clearing via CME ClearPort.

CME Group added that these contracts will receive automatic margin offsets against existing CME Group interest rate and equity index futures upon launch.

“Bloomberg Indices is proud to be at the forefront of advancing the evolution of credit markets and we’re excited to be working with CME Group to bring this new offering to market,” said Umesh Gajria, global head of index linked products at Bloomberg Index Services.

“The launch of listed futures on the Bloomberg US Corporate Bond Indices is intended to provide investors with the ability to more accurately and efficiently gain exposure to the corporate bond market and hedge their credit risk.”

The post CME Group to launch US corporate bond index futures this summer appeared first on The TRADE.

Tim Brennan

The move is set to provide an enhanced, more innovative and diversified offering for clients.

Tim Brennan, head of capital markets at S&P Dow Jones Indices (DJI), highlighted the key benefits of the collaboration: “By providing the underlying view into US dividend trends through our S&P 500 Dividend Points Index (Annual), coupled with CME Group’s financial products, market participants can track and express their views on an important component of equity returns.”

The new options contracts join previous additions to the dividend futures suite at CME Group, including: S&P 500 Annual and Quarterly Dividend Index futures, Nasdaq-100 Annual Dividend Index futures, and Russell 2000 Annual Dividend Index futures.

Read more: CME Group on the evolving FX futures and options landscape

Paul Woolman, global head of equity products at CME Group, said: “Client demand for managing risk and seeking investment opportunities around dividend exposure has accelerated the growth of our listed and centrally cleared dividend futures.

“Based on the success of our S&P 500 Annual Dividend Index futures, which traded more than 900,000 contracts in 2023, we are pleased to introduce these new options contracts to provide market participants with even greater flexibility to customise their dividend-related strategies.”

The post CME and S&P DJI to collaborate on launch of options later this month appeared first on The TRADE.

Despite the relative calming of FX volatility compared to 2022, the management of currency risk was still a top priority for fund managers throughout 2023. Our own research found that 82% of North American and 77% of UK fund managers were affected by USD and GBP volatility respectively, clearly highlighting that fund managers aren’t out of the woods yet when it comes to the threat of currency movements. While there will always be some that don’t hedge at all, many are deciding to hedge a higher amount of exposure to protect their returns. Likewise, rather than using long-dated FX forwards of up to a year or two, many fund managers chose to lock in rates of up to six months or less to add an extra layer of flexibility and nimbleness should the market move against them.

Despite the renewed focus on FX risk management, many fund managers still rely on manual legacy systems which can be cumbersome and inefficient. As a result, we can expect more firms to begin embracing new technology to automate their FX operations, helping them save much-needed time and resources and manage FX risk more effectively. Whether volatility will significantly increase again in 2024 is somewhat beside the point. The more important factor at play is underlying desire that funds have to keep the impact that FX has on their P&L to a minimum in the context of ongoing macro uncertainty. This uncertain climate, combined with the opaque nature of the FX market, means that we would expect firms to continue focusing on FX risk management.

Paul Houston, global head of FX products, CME Group 

Given all the uncertainty in the world and in business, risk is likely to remain a dominant theme in 2024. That goes for all markets, including FX swaps where it will be more important to manage short term interest rate risk. The evolution of the FX swaps market is at an important turning point, with many participants looking to electronify and optimise what has traditionally been traded on an RFQ or RFS basis, as well as demanding much greater price transparency. As the landscape continues to evolve, we expect greater client interest in hedging FX swap risk, both spot-starting and forward starting, via FX futures in 2024.

Stephan von Massenbach, chief revenue officer, DIGITEC

The FX swaps market is evolving quickly and we expect the pace of change to continue through 2024. As clients look to FX swaps as a source of global funding, there is demand for relationship banks to provide liquidity across multiple currencies and tenors. With this demand, banks will only be able to service clients efficiently by implementing scalable technology solutions, where trading workflows are completely automated – in data, pricing, distribution, and settlement.

In 2024, interdealer trading of FX swaps, which has traditionally been dominated by the broker market, will start to migrate to electronic venues. 360T and LSEG offer electronic interdealer FX swaps trading venues, and many other marketplaces are looking into establishing new and additional venues. As the FX swaps market grows, we expect to see regional banks trade more FX swaps. In the past they could not justify the investment in on-premise applications, but with SaaS apps deployed in the cloud, they are increasingly adopting FX swaps pricing technology to service their clients.

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