FMX Formally Launches, Bringing Competition to SOFR Futures
Posted by Colin Lambert. Last updated: September 24, 2024
FMX Futures Exchange has formally launched, backed by BGC Group and 10 market participants, initially the venue will offer SFOR futures, in direct competition with CME Group and it intends to raise the competition level in 2025 with the addition of US Treasury futures.
Bank of America, Barclays, Citadel Securities, Citi, Goldman Sachs, JP Morgan, Jump Trading Group, Morgan Stanley, Tower Research Capital, and Wells Fargo, are backing the venture, which has partnered with LCH for clearing. The firm says the partnership with LCH means participants on FMX can cross-margin the new futures contracts, bringing an extra layer of efficiency.
“This is the first US interest rate futures exchange to launch with a fully operational, globally connected, state-of-the-art trading system, along with enormous capital savings driven by the LCH’s cross-margin capabilities,” says Howard Luttnick, chair and CEO of FMX Holdings. “Together with our strategic partners, FMX is well-positioned to capitalise on this tremendous opportunity.”
Daniel Maguire, group head, LSEG Markets and CEO, LCH Group, adds, “Our partnership highlights LCH’s commitment to delivering choice to market participants. It will enable members and clients to benefit from our extended clearing capabilities and bring increased resiliency, margin efficiencies and liquidity to the USD rates derivatives market.”
The Full FX View
Currently, CME Group handles almost all SOFR futures trading, however while Bank of America analysts recently suggested that FMX represented “the most credible threat” to CME’s position, experience shows that overcoming a strong incumbent can be difficult. On a wider plane, FMX also offers cash Treasuries and interest rate products as well as FX, and it may take some heart from what it says is growth in these markets (it does not publish volumes in FX).
CME has faced down plenty of challengers before, therefore it will be confident that it can do so again, however there is one substantial difference in the current environment. Regulation has driven more Rates trading to clearing and this has seen the futurisation of the market to a large degree, but previously, challengers did not have the clearing part of the workflow. While CME seemed at one stage to believe that US regulators would not allow clearing of US interest rate products offshore, FMX, and its link up with LCH, appears to have overcome that particular obstacle.
This means that FMX is, as BofA stated, a credible competitor, thus eyes will be firmly kept on volumes as the group starts actual trading. For CME, it may have to trim prices here or there, but it is probably hoping that traders stick with the old adage, ‘if it ain’t broke, don’t fix it’.
