CME Launches FX Link to Create OTC/Futures CLOB

CME Group says it will launch spot FX basis spreads called CME FX Link on its Globex electronic trading platform. The Merc says this will create the first ever central limit order book between the OTC spot FX and CME Group FX futures markets.

It is expected to launch in Q1 2018 and, CME says, will provide OTC FX market participants with a more efficient way to access and use FX futures as part of their overall trading activity.  

The CME FX Link connects the markets via a single spread trade on Globex trading platform, thus allowing efficient credit line management across both markets. The FX basis spreads will be available in the new release testing environment in November and for first trade in Q1 2018 pending regulatory review and will initially be supported for six currency pairs: EUR/USD, JPY/USD, GBP/USD, CAD/USD, AUD/USD and MXN/USD. The spreads will be offered against each of the front three CME FX futures expiry months and new spreads added 10 business days prior to the last trade date of an expiring CME FX Futures.

CME is partnering with Citi’s FX prime brokerage unit, which will act as central prime broker for the spot FX transactions resulting from the spread. This will allow participants to leverage existing OTC FX interbank credit relationships and the scale of the established OTC FX prime brokerage network, the Merc says.  

“By strengthening the integration between futures and the OTC FX marketplace, CME FX Link will enhance access to our deeply liquid FX futures market,” says Paul Houston, global head of FX products at CME. “OTC FX market participants will benefit from the capital and regulatory advantages of listed futures as well as optimising credit lines through facing a central counterparty.”

Sanjay Madgavkar, global head of FX prime brokerage at Citi, adds, “By applying the capabilities of our global FX prime brokerage business, we believe we can help FX market participants to manage their exposures across both markets more effectively.”

Tom Gentile, head of FX trading, Crabel Capital Management, says, “This new offering can bring increased transparency to the FX marketplace, allowing buy-side firms to continue leveraging their existing OTC spot FX liquidity while enabling them to efficiently move and hold forward exposures via the FX futures market.”

Meanwhile, John Apperson, COO, Greenwave Capital Management, says, “CME’s FX Link can allow participants to transition from their current OTC FX activities into FX futures quickly and efficiently; making it a value-added tool for realising the benefits of FX futures and further strengthening the link between both markets.”

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Colin Lambert

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