Articles tagged by OTC
Data from the Bank for International Settlements show financial reform has not led to a greater proportion of derivatives trading on exchanges. Colin Lambert finds out why.
As the world’s regulators, led by a very aggressive Gary Gensler-led Commodity Futures Trading Commission (CFTC), sought to reform financial markets post-global financial crisis, the outcome seemed at the time to be the inevitable growth of trading on exchanges. “The world is moving to Chicago” was used as an analogy to express this sentiment – that city being closely associated with the exchange model of course.
Carlo Koelzer, CEO of 360T Group and global head of FX at Deutsche Börse Group, talks to Galen Stops about the importance of building critical mass amidst the changing landscape of the FX market.
Galen Stops: It’s now about one year on from Deutsche Börse’s acquisition of 360T. Can you shed some light about why you agreed to the deal?
Carlo Koelzer: Prior to this deal we were a big trading platform in the market, but a small organisation in comparison to our competitors. When you look at the larger platforms in the market they’re backed by firms like Icap, Thomson Reuters, Bloomberg and State Street, all of whom had larger balance sheets than us.
OTC versus the exchange. It’s a debate in foreign exchange that is almost as old as this oldest of markets. You’ve read the arguments and listened to the debates where the argument is driven by people passionate about their preferred mechanism, and still you can't make up your mind who makes the most sense.
So what should be the important drivers of this debate? What should our end goals be? Profit & Loss’s deputy editor Galen Stops may have found the answer…in Cuba.
Kalahari, a provider of real-time pricing and analytics software for financial markets firms, has launched an FX futures and rates service designed to enable users to benefit from real-time futures versus OTC market arbitrage opportunities.
The service is available to traders via Web browser or via direct feed and is the first in a series of new futures/OTC comparison pricing services planned by the firm this year.
Other instruments planned for launch include: MAC swaps for US dollars, EUR and GBP currencies and gold futures pricing, to coincide with the new contracts being launched on the London Metals Exchange this June – all crossed with the OTC markets – to follow soon after.
Galen Stops takes a look at the new initiative from the CME that aims to bridge the gap between the OTC and listed FX markets.
It’s an old debate in the FX industry – will the market inevitably move towards an exchange model? Indeed, this question was the cover story on a 2001 edition of Profit & Loss.
As part of the response to the financial crisis, regulators favoured pushing more trading activity towards a centrally cleared model, while certain other regulations looked to add extra costs into bilateral trading. All of this led some market observers to predict that more trading activity would shift towards an exchange traded model.
There isn't much left up for grabs, but 2018 will see a deal in the platform world, says Colin Lambert.
In all the history of the Profit & Loss Crystal Ball, platform consolidation has been the most fertile ground.....mainly for critics! If viewed in terms of the number of deals, however, the story is a little different.
The headline has been in demand from exchange groups for an OTC presence, culminating in deals for Hotspot, 360T and Fastmatch, and it is hard not to see this continuing – in spite of CME finally deciding to do something about further penetrating the OTC space by launching a service itself rather than entering partnerships.
Those of us, me especially, who have been waiting for the e-revolution in FX to hit the swaps markets may have reason for optimism today, although actual hard evidence through results may have to wait quite a bit longer. CME's new FX Link launched this morning in Asia, without much fanfare it has to be said, but launch it did - and it could be the start of a market structure change that we e-FX swaps proponents have been expecting.
CME Group is set to acquire NEX in a transaction valued at £10 per share, consisting of 500 pence in cash and 0.0444 CME Group shares.
The proposed transaction has been approved unanimously by the board of directors of both companies and is expected to close, pending approvals by regulators and NEX shareholders, in the second half of 2018.
"At a time when market participants are seeking ways to lower trading costs and manage risk more effectively, this acquisition will allow us to create significant value and efficiencies for our clients globally," says CME Group chairman and CEO, Terry Duffy. "As one organisation, we will be able to employ the complementary strengths of each company to serve a wider client base while diversifying our combined businesses across futures, cash and OTC products and post-trade services."
If there’s one thing that has become abundantly clear over the past few years, it is that many OTC platforms have decided that they need to scale their businesses up and out in order to be successful in today’s FX market.
This was made abundantly clear in a press call today when Terry Duffy and Michael Spencer, respectively the CEOs of CME Group and NEX Group, talked about the logic behind their $5.4 billion tie-up.
“Effectively, what we’re building is a bigger supermarket,” said Spencer. “Why do people shop in supermarkets? Because it’s convenient to buy everything in one place.”
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.
“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.
CME Group is planning to change the time that its FX options expire to 10 am EST.
This change will begin with contracts expiring after June 9, 2019. Clients across time zones will be able to trade listed options that expire at the same time as most OTC contracts.
"Aligning to the 10 am New York OTC convention makes it easier for global clients to take advantage of CME Group's leading electronic FX options platform and transfer risk more seamlessly between OTC and our cleared, deliverable solution," says Paul Houston, CME Group global head of FX products. "As more institutions need to comply with uncleared margin rules, we're extremely focused on providing a regulated FX options solution that is capital efficient."
AirSwap, a decentralised global network for Ethereum tokens, is rolling out a private, beta version of its new conversational OTC features today, August 15th.
AirSwap staff and partners gave product overviews and demos at a private event on August 8th at its Brooklyn loft, which featured presentations on the AirSwap Widget, the Developer Toolkit and a new conversational OTC product. Key partner firms also discussed integration and building on AirSwap.
The event kicked off with AirSwap advisor, VC and blockchain enthusiast, Bill “Yoda” Tai, giving an overview of AirSwap’s role in the evolution to frictionless, decentralised, peer-to-peer trading, discoverable by search.
Tullett Prebon Information (TPI), which provides independent real-time price information from the global OTC financial and commodity markets, is expanding its partnership with Yonhap Infomax, a South Korean real-time news and financial data service.
The new partnership will enable TPI to distribute and license its OTC data via Yonhap’s data feed service directly to local financial institutions.
Partners for over a decade, TPI and Yonhap are now providing domestic banks and securities firms with a new option to access TPI’s OTC data for swaps, fixed income and FX instruments. Yonhap will now deliver TPI data to users through its feed services, plugging directly into third-party and customer applications.
Equities analysts at UBS have issued a research report on the merger between CME Group and NEX Group, stating that while they are confident in the potential upsides to this deal, the benefits might not start to materialise for at least a year.
Having previously downgraded CME shares from “Buy” to “Neutral”, the UBS analysts Alex Kramm and John Goode decided to maintain the current rating, with an unchanged 12-month price target of $204 per share. At the time the report was issued, CME shares were trading at $189.51.
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.
BitGo, a provider of cryptocurrency financial services, has partnered with Genesis Global Trading, an OTC digital currency trading firm, to provide clients with the ability to trade digital assets directly from BitGo custody.Through this partnership, client firms will be able to maintain assets in custody with BitGo Trust Company, a qualified custodian purpose-built for digital assets, while being able to get online, real-time pricing for buy and sell orders.Clients firms will also be able to execute transactions from cold storage without having to manage keys and can access Genesis’ liquidity through a network of trading partners with same day settlement directly through a BitGo Trust account.
B2C2, a cryptocurrency liquidity provider, has launched streaming pricing with point-and-click execution on its OTC platform.For the first time, B2C2’s clients will be able to view and execute trades on a real-time, two-way market via the firm’s secure web interface. The new functionality allows market participants to monitor live pricing in user defined quantities and execute with the click of a button, as they would on traditional FX trading platforms.Speaking to Profit & Loss about the launch, Philip Gillespie, CEO of B2C2 Japan, says: “We were one of the first firms to issue RFQ trading electronically and we already have a web portal where clients can go for trading and settlement. What we have done now is the next step forward, so that when a client goes onto the web-based GUI, not only do they have the RFQ and settlement request, but they can also see continuously streaming, two-way pricing.”