CME opens up about its CCP elephant

Just as the London Foreign Exchange Joint Standing Committee released its assessment of central counterparty clearing in foreign exchange, the CME Group opened up dialogue for its platform-agnostic post-trade FX clearing initiative.

The exchange said it plans to be ready on an internal basis to extend the use of CME ClearPort to cover all the products within FX, including FX spot, forwards, swaps and non-deliverable forwards, by year-end. Essentially, it enables traders to negotiate their own prices for FX products and submit the transactions through the CME ClearPort gateway to the CME Group Clearing House, either via application programming interface or phone.

Responding to concerns raised by the FXJSC, the CME said its clearing house can clear non-standardised products. "If you want to send us a 77-day forward, it's a 77-day forward," said Derek Samman, global head of foreign exchange products at the CME Group in Chicago. "This will flexibly be able to adapt to whatever you send us, assuming it's under the umbrella of authorised products, tenors and currency pairs."

"The goal here is to say on a participative basis, in partnership with the market, ‘What if we came together and worked together to create a service that creates a more robust mechanism and market structure?' Spot has reacted well to the events of the past 12 months - forwards, swaps, options and emerging markets have not recovered - there's a real credit constraint there," said Samman.

The exchange said details of trade flows have yet to be decided. On fees, Samman said, while no decisions have been made, the exchange has a clear view of what they will look like. "We know what the fee structure is and what's competitive in the futures market. We know what the fee structure is broadly in the over-the-counter market between the various pieces of the CLS charges, and the prime charges, and other intermediary charges. So we have a firm idea as to what that will look like," said Samman. "Put it this way, this is not a service that is going to compete on fees, it's going to compete on the clearing initiative. The price has to be right and we'll iterate with market feedback."

In response to the rival threat posed by LCH.Clearnet's initiative, Samman said: "The FX market has thrived for so many years because it is a large, diverse and fragmented business. It allows for multiple business models. We anticipate that other models will come to market."

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