e-FX Initiative Award – CME Group
A feature of the FX market in recent years has been the rise in importance of futures, specifically CME FX futures, in price formation, but this has had one drawback for a large number of participants, especially those away from the top table – they didn’t have access to the market, nor did they have the resources to connect.
For the major players this was not an issue, but one look at the latest BIS Triennial Survey of FX Turnover will tell you of the importance of smaller, regional banks – just the $712 billion per day traded in spot alone by “non-reporting banks”. Regional banks are, behind the reporting dealers for the BIS survey, comfortably the largest counterparty segment in the FX market (double the activity of hedge funds and prop trading firms as a guide), but they didn’t have easy access to 90 yards of liquidity a day in the CME futures market.
CME’s solution was FX Spot+, a platform that brings listed FX liquidity to non-futures market players, in an easily-connected OTC environment. In reality, as was the case with an earlier award, the main benefit from Spot+ is likely to be felt by its owner. CME Group, and EBS before it came under the Merc’s umbrella, have long struggled to break the structure between the two primary venues, where certain currencies largely exist on one venue. Spot+ can break that mould by bringing some strong futures liquidity in, for example, Scandies and Commonwealth pairs, to the CME OTC business.
There will also be a benefit to the broader industry, because the early evidence is that two venues that may have had cause to be nervous – EBS Market and LSEG Spot Matching – have not yet been impacted by Spot+. The latter has, naturally, grown volumes, but maybe not at the expense of the two incumbents – it may well be growing the overall pie, largely by bringing the worlds together.
Overall, it makes sense for a company with control over two of what have become the three primary market CLOBs to bring that liquidity together. At the same time, the need to expand the range of bank participants can be satisfied. That is a ‘win-win’ for CME and market participants.
