News Release

Research Confirms Shifts in Global Foreign Exchange Trading Patterns and Reactions to Credit Constraints

Mon Feb 22 2010

CHICAGO and LONDON, Feb. 22 /PRNewswire-FirstCall/ -- CME Group, the world's leading and most diverse derivatives marketplace, today released results from its third annual Global Foreign Exchange (FX) Market Study of both cash and exchange-traded FX products.  Overall, concerns over counterparty risk remain high, albeit reduced slightly from last year.    

"This year's study with our partner ClientKnowledge illustrates that there continues to be a fundamental shift in the global FX market towards risk mitigation," said Derek Sammann, Managing Director of Financial Products, CME Group.  "Investors continue to look for alternative ways to mitigate counterparty risk in both the over-the-counter (OTC) and futures markets.  By offering liquidity, transparency and credit risk mitigation, we provide investors with the solutions they need to manage their risk on exchange.  In addition, we plan to offer a post-execution clearing service for OTC FX trades through CME ClearPort giving market participants increased security, efficiency and flexibility."

"The combination of the global credit crisis and development of e-trading has resulted in a greater focus on post-trade services, risk management and increased efficiency," said David Poole, COO ClientKnowledge. "FX market participants are balancing taking advantage of opportunities for increased revenue whilst accounting for market, settlement and systemic risk."

At the time the survey was conducted (September 2009), traders revealed changing priorities when assessing their concerns in troubled markets.  The Global FX Market Study showed the following:

  • Banks cite settlement risk as their biggest concern when supplying e-pricing, up to 69 percent from 52 percent last year*.  Worries about counterparty risk remain high, with two-thirds of those surveyed citing it as a concern in 2009.  Concern about latency saw a 13 percentage point increase, up from 16 percent to 29 percent.  
  • When assessing systemic risk:
    • Investors are more concerned by economic problems than banks.  Back office and settlement limitations emerged as the biggest concern for banks, increasing to 47 percent, up more than twice the 16 percent cited in 2008.  Worries about a liquidity crunch dropped significantly from 51 percent in 2008 to 33 percent in 2009, and credit or bank insolvency remains nearly unchanged at 26 percent, down from 27 percent in 2008.
    • Investors are more concerned about credit/bank insolvency in their view of exposure.  Highly active investors' concern over credit/bank insolvency is at 44 percent, up from 36 percent in 2008.  Liquidity concerns, the topmost worry in 2008, came in second at 36 percent.  Worries regarding macro-economic problems jumped back up to 31 percent, from 14 percent in 2008.  
  • In employing options, banks and investors placed more focus on plain vanilla options versus barrier and exotic options, suggesting that both banks and investors are making the move back to simplicity, liquidity and transparency when trading options.  Trading more complex options may be a more effective hedge now, but managing the risk over the life of the derivative still remains a major consideration.


 

The research was conducted by ClientKnowledge, the provider of expert research, analytics and strategy for the wholesale financial markets.  A summary of the survey is available at www.cmegroup.com/globalfxstudy.

Video content from Derek Sammann can be found here: http://powerhost.powerstream.net/008/00102/100210Sammann1.wmv  

With CME Group FX, customers have transparent and equal access to an innovative global product suite of 49 futures and 32 options contracts.  With over $100 billion in daily liquidity, CME Group is the largest regulated FX marketplace in the world – serving a diverse range of market participants that includes Banks, Hedge Funds, CTAs, Proprietary Trading Firms, Multinational companies and Individual Traders.  For more information on CME Group FX, visit www.cmegroup.com/fx.  

*Methodology: the survey polled 952 FX active organizations worldwide including 394 banks, 302 money managers and 256 'non-traditional' money managers or 'leveraged' traders including hedge funds and Commodity Trading Advisors (CTAs). Participants were drawn from a global distribution. The research was conducted between July and September 2009.  

For the past 16 years ClientKnowledge has interviewed participants in the FX market, providing a global picture of emerging trends and benchmarking the performance of FX providers. This research enables ClientKnowledge to help trading firms maximise the value of their franchise, in terms of client distribution and the profitability of client-driven trading.  Established in 1993, ClientKnowledge provides expert advice in sales, trading and associated technology, using research and analytics to drive customer recommendations.  More information is available at www.clientknowledge.com.

As the world's leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk.  CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate.  CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago.  CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort®.  These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk in both listed and over-the-counter derivatives markets. 

The Globe logo, CME, Chicago Mercantile Exchange, CME Group, Globex, E-mini and CME ClearPort are trademarks of Chicago Mercantile Exchange Inc.  CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago.  NYMEX and New York Mercantile Exchange are trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc.  All other trademarks are the property of their respective owners.  Further information about CME Group (Nasdaq: CME) and its products can be found at www.cmegroup.com

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