CME Group bags top awards for FX derivatives and spot

Amid bouts of Asia-Pacific (Apac) volatility, market participants tap into CME Group’s deep pools of FX liquidity, seeking certainty in times of economic stress

As the operator of two of the world’s leading FX trading venues, CME Group plays a key role in providing liquidity to the global FX market and was recently recognised by FX Markets for this role in the Apac region. Its EBS Market platform is the primary over-the-counter (OTC) price discovery venue for Asian non‑deliverable forwards (NDFs) as well as the go-to platform for two of the region’s most important spot pairs: USD/JPY and USD/CNH. The firm also operates the world’s largest regulated FX futures and options market, which is increasingly catering to Asian currencies.

With nearly half of its clients based in Apac, the region is an integral part of CME Group’s priorities. The firm continues to focus on improving the quality and quantity of liquidity for Apac clients using its trading venues.

At a time when diverging interest rates between Japan and the US are driving yen volatility, and the China and correlated economies in the region, such as Australia, are facing headwinds, EBS Market and CME FX futures and options play a key role in providing FX liquidity to clients when the Apac market is under particular stress.

“Periods of market volatility reinforce the criticality of EBS, and we continue to invest to support the ongoing health and robustness of the primary venue as a key pricing and liquidity source in FX markets,” says Paul Houston, global head of FX at CME Group.

The recent volatile movements in 
USD/JPY exemplify EBS Market’s strategic role in maintaining resilience and liquidity in the FX market, providing participants with the ability to hedge risks as events unfold. Indeed, the persistent weakening of the yen against the dollar over much of 2023 and 2024 – and speculation thereof – to dampen the currency’s slide, has caused significant volatility in the pair.

This played out spectacularly on April 29, 2024 amid volatile price action, particularly from 12:00–4:00pm Japan Standard Time, where EBS Market experienced significant activity in spot USD/JPY trading, exceeding $70 billion. During this four-hour window, EBS Market witnessed substantial order flow in USD‌/JPY, with almost 850 orders submitted for greater than or equal to $50 million, with a maximum order size of $355 million. Average top-of-book and order size across the entire book was about 2.5 times higher than usual, and order arrival times were approximately three times faster.

In a similar fashion, the pressure on the yuan since the beginning of 2024 has caused surges in USD/CNH spot volumes. On March 22, 2024, a total value of $24.2 billion was traded – the fourth-largest trading day ever for the pair – with 83% of that volume traded on EBS. One-month outright NDFs in Asian pairs were also very active and had their second-best day of 2024, reaching volumes of $13 billion.

“This demonstrates how, in times of market stress, FX participants turn to the firm liquidity and central price discovery provided by a primary venue like EBS Markets,” says Houston. “We continue to see heightened activity in Asian currency pairs in the spot and NDF markets on the back of sharpened market volatility.”

On-exchange trading also fared well in 2023. Notable average daily volume records were made during the year in Asian currency pairs, with JPY/USD futures topping 177,000 contracts for a notional of about $16 billion, while USD/CNH futures surpassed 1,900 contracts traded for a notional of $190 million. The average daily volumes in the fourth quarter of 2023 were 126% higher than the run rate in Q3.

Open interest, which measures the level of open positions against the CME clearing house, reached records driven by buy-side participation. In particular, AUD/USD and USD/CNH saw record levels of positioning in 2023 and, in March 2024, JPY/USD futures reached a record open-interest month worth $40 billion in notional.

 

Investment in new products and services

While market forces were significant contributors to the increased volumes on EBS Market and CME Group FX futures and options, investment in new products and services also played a part. These investments accelerated customer adoption and cemented the role of futures and options within the global and Apac FX markets.

Important among these was the change to the minimum price increments for CNH futures, which was augmented by a strategic programme to incentivise market-makers and market participants according to their trading volumes. This improved CNH futures’ liquidity and led to greater top-of-book depth and tighter spreads.

In 2023, CME Group also launched USD/CNH options and added expiries on other options pairs to meet market participants’ need for more strike granularity. The exchange now offers expiries for every day of the week out to two weeks, with extra monthly and quarterly end-dates out to two years.

Elsewhere, CME Group implemented a size priority matching algorithm on EBS Market for USD/TWD NDFs to give preference to orders above a certain size, ahead of smaller orders at a given price level. The move increased inventory at top-of-book and boosted order volumes. Given the success of this initiative, the exchange is looking to extend the process to other Asian NDF pairs.

CME Group added new liquidity providers to its block trade and ‘exchange for related position’ network, enabling Apac clients to access more than 20 liquidity providers during Asian trading hours, which has led to a 64% growth of block-trade volumes. And, for greater execution flexibility, reporting times for block trades were extended to 15 minutes.

But CME Group is not resting on its laurels. The launch of the firm’s FX Spot+ product in the next 12 months will enable spot FX traders to access CME Group FX futures liquidity in OTC spot terms within an open, transparent central limit order book environment for the first time. FX futures market users will also benefit from expanded access to OTC FX liquidity.

“We are creating a new marketplace, which brings together the FX spot and futures markets, allowing future liquidity to be tradable in spot form and spot liquidity to be shown and traded in futures contracts,” says Houston.

“This will create an accessible and centralised liquidity pool across both markets, increasing transparency and trading opportunities for clients. This will be a unique offering to CME Group and we’re incredibly excited about the opportunity it will provide for our clients.

“The launch should be particularly attractive for Asian regional banks providing access to a new diversified liquidity source on the same connectivity they use to access EBS today.”

 

CME Group was named Best trading platform for FX derivatives and Best trading platform for spot at the FX Markets Asia Awards 2024.

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