Best exchange for FX – Eurex

Eurex has built a unique FX solution with an excellent selection of liquidity providers active across the entire trading day

For the hundreds of market participants due to be caught by the final two phases of the uncleared margin rules (UMR), which come into effect in September 2021 and September 2022, the benefits of trading FX on exchanges garnered particular attention and appeal as they looked for ways to reduce the amount of margin they would need to exchange with their counterparties.

Many see the value of facing just a single counterparty to better manage their collateral, while others especially prize the advantage of multilateral netting to proactively manage their notional exposure to UMR.

For firms actively engaged in over-the-counter (OTC) FX, the overarching benefit of trading on-exchange is reducing the amount of margin they may have to exchange. For less active firms close to the threshold – either just above or below – shifting their trading to an exchange could be just enough to keep them under the threshold indefinitely. 

“As an answer to UMR, we’ve been constantly onboarding new clients from different perspectives, but especially the buy side,” says Jens Quiram, global head of FX at Eurex. “Phase five, but in particular phase six, is increasing the interest of the buy side to manage their derivatives exposure with listed derivatives as an alternative to the traditional FX market.

“Listed derivatives in combination with central clearing allows the buy side to manage and reduce its exposure, potentially slip under the threshold and not fall in-scope of UMR at all. This is something we’ve seen from borderline clients who are close to or possibly a little bit over the threshold.”

Managing UMR implications in conjunction with implicit and explicit cost savings gives centrally cleared and on-exchange traded FX products a competitive edge over traditional OTC business as clients have started to become more conscious about total cost analysis.

As a result, on-exchange volumes increased and, in 2020, 600,000 FX contracts were traded on Eurex – a 500% increase on the previous year. And the growth momentum for listed FX continues in 2021.

Active in the FX space since 2018, Eurex has built a unique FX solution with a healthy selection of liquidity providers active across the entire trading day. Building on its position as one of Europe’s largest derivatives exchanges, Eurex is keen to operate a robust and flexible European-based FX listed liquidity pool.

At its inception, Eurex essentially focused on futures contracts for Group of 7 pairs but, most recently, the exchange added the three Scandinavian currencies to its offering and aims to extend that to all G10 currencies in the coming months. 

Emerging market currencies are also very much on the exchange’s radar and, in summer this year, Eurex expanded its long-standing partnership with the South Korean Stock Exchange to extend the trading of USD/KRW futures contracts during European and US trading hours. 

The exchange also offers rolling spot futures and options on futures to complete the offering with classic products and product innovation.

To appeal to a wider client base, Eurex has made flexibility of its products a central tenet. The standard size of its contracts are 100,000 units with the minimum price change at one-tenth of a pip and, for those clients looking for variable dates, Eurex is working to provide its clients the ability to define the expiry date of a contract based on their needs as flexible contracts.

While such flexibility will undoubtedly lure more FX market participants to exchanges, Quiram is convinced Eurex’s relevance in the industry is to provide a differentiated but compatible offering. 

“I believe the future is a hybrid world,” he says. “The biggest interest will be in solutions where the two worlds of OTC and exchange-traded derivatives [ETD] FX can be linked together.”

At Eurex this is very much a reality. As Eurex and 360T both fall under the umbrella of Deutsche Börse,  360T’s clients can access the benefits of FX futures by trading the Eurex ETD FX market in the same system as the OTC FX products, such as spot and forwards.

What’s more, in the past year Eurex began to provide central clearing for OTC spot, forwards, swaps and cross-currency swaps in the same fashion as those traded on-exchange.

“Under the Deutsche Börse umbrella we aim to offer OTC and on-exchange FX trading and clearing within one pocket,” says Quiram. “We believe the catalyst for future growth is to combine the different markets and that those venues that can offer both OTC and exchange liquidity pools will attract market participants in the future.” 

Eurex was voted Best exchange for FX at the 2021 FX Markets e-FX Awards.

Sponsored content