Day: 10 November 2016

BIS Data Highlight Impact of Clearing on Interest Rate Market

The Bank for International Settlements (BIS) has released its latest semi-annual survey of OTC derivative markets which highlights the growing impact of central clearing on interest rate derivative markets.
The publication presents the combined results of two complementary BIS surveys on positions in OTC derivatives markets: the semi-annual survey of derivatives dealers in 13 jurisdictions, and the Triennial Central Bank Survey of dealers in an additional 33 jurisdictions. The surveys took place at end-June 2016. A companion survey on turnover in foreign exchange and OTC interest rate derivatives markets took place in April 2016, and the results were published in September.

Sterling and Yen Derivatives Drive FX Growth: BIS

The BIS semi-annual survey of OTC derivatives finds that while the interest rate segment continues to dominate outstanding derivatives balances, FX outstandingsd grew strongly driven by sterling and yen contracts.
The BIS says the gross market value of OTC derivatives – that is, the cost of replacing all outstanding contracts at current market prices – rose to $20.7 trillion at end-June 2016 from $14.5 trillion at end-2015.
The market value of foreign exchange derivatives involving the yen and pound sterling more than doubled in the first half of 2016 on the back of sharp moves in the respective currencies.

Will Trump Fight the US Treasury Over Currency Manipulation Claims?

Donald Trump’s position on the currency manipulation provisions in US trade deals could lead him into direct conflict with US Treasury once he assumes the presidency, according Dick Cunningham, a senior international trade partner at Steptoe & Johnson’s Washington office.

Speaking on a webinar examining some of the implications of this week’s US presidential election, Cunningham noted that Trump has vowed to kill the proposed Transatlantic Trade and Investment Partnership (TTIP).

One reason why Trump has criticised the TTIP in the past, said Cunningham, was because although it contains a currency manipulation provision, the provision is not enforceable.

CME Reports Record Trading Day

CME Group reports that it reached a new record high in single day volume on November 9, with 44.5 million contracts traded across all asset classes, breaking the previous record set in October 15, 2014, by 12.7%.

This volume was obviously driven by the unexpected victory of Donald Trump in the US presidential election on Tuesday.

Japanese yen futures hit 583,063 contracts, the previous record high of 550,553 set on June 7, 2013. Meanwhile, Mexican peso futures reached 224,028 contracts, up from the prior record of 208,499 set on December 8, 2014.

Saxo Resumes Default Margin Requirements Post-Election

With the immediate market risk of the US elections having diminished, Saxo Bank has returned its margin requirements to normal levels, with the exception of GBP pairs.

Saxo raised margin requirements ahead of the US election to try and ensure that its clients were appropriately leveraged going into what it expected could be a significant market event.

It raised the requirements on most major FX pairs up to 2%-3%, with MXN and RUB going to 15% and 10%, respectively. Claus Nielsen, head of markets at Saxo, comments:

Hybrid FX Options Trading: Best of Both Worlds?

In August, Tullett Prebon announced a partnership with GMEX group to develop a hybrid voice and electronic trading platform for trading FX options. But what are the drivers behind such a deal and can it really give Tullett an edge in today’s electronically traded markets? Nicola Tavendale writes.

Despite a 24% decline in average daily turnover since 2013, global trading volumes in FX options remain significant at $254 billion, according to the most recent

Bank for International Settlements (BIS) survey.

Platforms Benefit from US Poll Volatility

Early indications from FX trading platforms suggests all saw a good boost to activity during the US election results sequence.
Bats’ Hotspot handled average daily volume (ADV) of $64.5 billion on November 9, the firm says, roughly two and a half times more than the average it had been handling in the first week of the month and significantly higher than last month’s $25.3 billion ADV.
FXSpotStream also had a good day, with the firm saying it handled $48 billion on a single count basis, almost three times its volumes which last month were $17.1 billion.
FastMatchFX also saw a similar increase in activity, handling $38 billion yesterday, up from the $14 billion it was averaging in November and the $13.6 billion averaged in October.

And Another Thing…

Putting aside all jokes about the UK’s disappointment at losing their “dumbest electorate crown”, I’ll keep this brief because the world is still coming to terms with how the “experts” once again got it hopelessly wrong. So just to say yes, the FX market was very orderly yesterday as the results came in but (there’s always a ‘but’ remember), we are in no way out of the woods. For just as this was a eerie echo of Brexit, so too could market behaviour be in the coming months.