SGX Launches “Futurised” OTC FX Product

Singapore Exchange (SGX), is launching a new product, SGX FlexC FX Futures, with the aim of “futurising” certain OTC FX product offerings.

Targeted for launch on August 27, SGX FlexC FX Futures – developed in consultation with market participants – enable bilateral trades that are privately negotiated with tailored expiration dates to be registered and cleared like a standard SGX FX futures contract. This feature will be available for INR/USD, KRW/USD, TWD/USD, USD/CNH and USD/SGD contracts.

Michael Syn, head of derivatives at SGX, says: “Access to counterparty credit, especially for tenors longer than spot, is increasingly scarce and expensive in the OTC FX markets. To encourage broader adoption of price risk management in Asian FX, SGX is proud to announce the innovative FlexC FX Futures. We have worked with market participants to bring the efficiencies of futures market infrastructure into Asian FX. FlexC FX offers futurised client-clearing, bringing the surety of SGX’s market-leading central counterparty clearing house (CCP) to existing bilateral credit relationships, and expanding opportunities for improved Asian FX price discovery and risk management workflow.”

With this new product, SGX is looking to help firms streamline their regulatory obligations while offering them an effective way of enhancing operational efficiencies, lowering costs and counterparty credit risk, and yet keeping their bilateral trading relationships.

The exchange says that it is looking to build up an ecosystem around its FlexC FX Futures, and is collaborating with various technology providers and interdealer-brokers (IDBs) to help achieve this.

One such technology provider is BidFX, whose CEO, Jean-Philippe Male, comments regarding today’s announcement: “BidFX is always very happy to work on innovative solutions that address today’s complex trading and post-trade environment. We are delighted to support this initiative with SGX, which will help enhance our clients’ operational capabilities, as well as provide alternatives to a pure OTC trading workflow.”

Another is TradAir, whose co-founder and CMO, Ayal Jedeikin, says: “We are excited to participate in this new SGX initiative. TradAir has been a pioneer of trading software for regional banks and inter-dealer brokers for emerging currencies since its inception. We see great potential in utilising SGX FlexC FX Futures solution to remove existing frictions in the OTC FX markets for currency pairs associated with INR, KRW, TWD, CNH and SGD so that market participants can continue to enjoy an unparalleled level of growth as experienced in the past few years.”

On the IDB side, Wessel van der Scheer, managing director at TFS Derivatives HK, explains his firm’s role in this ecosystem thus: “TFS Derivatives HK Ltd will act as an independent intermediary, operating our platform TradMatch, with institutional block-size participants providing liquidity on the SGX FlexC FX Futures. We will support a Central Limit Order Book on the outrights and the calendar spreads, while also running continuous and anonymous mid-market matching opportunities. Tradition Asia has a long-standing relationship with SGX and we hope to develop this further with the SGX FlexC FX Futures.”

Singapore remains the biggest FX centre in Asia and the third-largest globally after London and New York, with activity being driven by the growth and volatility in G10 and Asian currencies.

SGX’s suite of FX futures recorded a cumulative notional volume of $385 billion from January to June 2018, up 132% year-on-year. Notably, trading volume of SGX USD/CNH futures in the same period has reached $194 billion, surpassing the 2017 full-year volume of $190 billion.

Galen Stops

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