Singapore Exchange (SGX) has successfully completed the first USD/CNH Flexible FX futures trade.The transaction involved Bank of China (Singapore) and ICBC (Singapore) executing two CNH FlexC FX futurised swap trades on SGX. A total notional value of $8 million changed hands.“The transaction marks a major step forward in bringing together the listed and OTC markets in FX. With global regulatory initiatives such as Basel III and MIFID II coming into play, financial institutions are facing an increasing burden of capital requirements that include Leverage Ratio, Liquidity Coverage Ratio and Counterparty Credit Risk charges, as well as Uncleared Margin Rules (UMR) for OTC derivatives.
“It’s not rocket science, but it is a different approach compared to other exchanges,” says KC Lam, head of FX and rates at SGX, when discussing the exchange’s new FlexC FX futures, which aim to “futurise” certain OTC FX product offerings.
This is, of course, a reference to the recent product initiatives launched by various exchange groups in an attempt to bridge the gap between OTC and listed FX trading.
While Eurex has launched rolling spot futures, which mimic the trading of OTC FX spot contracts, combined with the daily usage of a tom-next (T/N) swap in order to roll over the value date of the spot position, and CME has launched CME Link, spot FX basis spreads offered on Globex to create a central limit order book (CLOB) between the OTC spot FX and CME FX futures markets, SGX is indeed taking a very different approach.