Growing FX Emerging Market Options Trading

Emerging markets currency trading has seen significant growth in recent years. According to the 2019 Triennial Central Bank Survey conducted by the Bank for International Settlements, the Mexican peso is the 15th most traded currency, the Russian ruble is 17th, the South African rand is 18th and the Brazilian real is 20th.1  BIS data show that the Mexican peso had a daily average volume of $114 billion, the Russian ruble and South African rand $72 billion, and the Brazilian real $71 billion.2 OTC FX option trading averaged $8 billion per day for the peso, $2 billion for ruble, $7 billion for the rand and $11 billion for the real.

The Exchange currently offers emerging market options for trading on the CME Group trading floor3 and the CME Globex electronic trading platform, and for submission for clearing only on CME ClearPort.  Emerging market options are eligible for block trading and exchange of option for option (EOO) trading.

The year 2020 saw a wide range of enhancements to CME’s emerging markets options portfolio. This article highlights what has changed. The changes align CME’s emerging market option contracts with the broader over-the-counter (OTC) market to encourage growth and participation in these contracts.  A market maker is now quoting emerging market options with improvements in liquidity and trading activity.

Strike price and strike ranges

Strike rule for RUB/USD options

  • Front 3 monthly contracts: $0.00010 increments, +/- 20 strikes
  • Non-front month contracts: $0.00020 increments, +/- 20 strikes
  • Weekly Friday contracts: $0.00010, +/- 15 strikes

Strike rule for ZAR/USD options

  • Front 3 monthly contracts: $0.00050 increments, +/- 20 strikes
  • Non-front month contracts: $0.00100 increments, +/- 20 strikes
  • Weekly Friday contracts: $0.00050, +/- 15 strikes

Termination of trading time and date

The Exchange changed the termination of trading time on the last trading day for RUB/USD and MXN/USD options to better align to OTC conventions in the local markets. The last trading day was changed for monthly RUB/USD options to ensure there is optimal liquidity in the RUB/USD futures ahead of the futures contract last trading day.

Termination of trading for RUB/USD options

  • 12:30 p.m. Moscow Time
  • Two Exchange business days prior to the 15th day of the contract month for monthly options

Termination of trading for MXN/USD options

  • 12:30 p.m. New York Time (11:30 a.m. Central Time)

Minimum price increment (MPI)

CME Group also reduced the minimum price increment for RUB/USD options and ZAR/USD options. The more granular pricing allows market makers to deliver actionable liquidity that is competitive to OTC markets, thus reducing execution costs for all participants.

MPI for RUB/USD options

  • $0.000002 per Russian ruble = $5.00

MPI for ZAR/USD options

  • $0.00001 per South African rand increment = $5.00

Underlying futures contract

The Exchange changed the underlying futures contract for RUB/USD and ZAR/USD options to be the nearest quarterly futures contract month (in the March quarterly cycle). The quarterly futures contracts have the highest trading volume and open interest, thereby provide options holders with the best liquidity for hedging and offsetting positions.   

Futures fixing

The Exchange changed the ZAR/USD futures fixing to the three-tier calculation process used for most other FX futures fixings including the new RUB/USD futures fixing. On option expiration days, these FX options will auto-exercise into the corresponding underlying FX futures contract or be abandoned based upon the expiring FX option’s moneyness relative to the fixing price. 

Conclusion

CME has made several important changes to the RUB/USD, ZAR/USD and MXN/USD options contracts to make the contracts more functional, providing additional flexibility and lowering potential trading costs through added liquidity. These changes, designed in collaboration with liquidity providers, should attract a broad range of market participants seeking to diversify their volatility trades or to hedge exposure to these growing emerging market currencies. 

View contract specs:

Russian Ruble

South African Rand

Mexican Peso

Brazilian Real

For more details, see the following Special Executive Reports.

Contract title

Commodity code

RUB/USD Monthly options

CME Globex: 6R

CME ClearPort: RU

Open Outcry: UO

Clearing: RU

RUB/USD Weekly Friday options

CME Globex: 6R1-6R5

CME ClearPort: RU1-RU5

Open Outcry: RU1-RU5

Clearing: RU1-RU5

ZAR/USD Monthly options

CME Globex: RO

CME ClearPort: RA

Open Outcry: RO

Clearing: RA

ZAR/USD Weekly Friday options

CME Globex: 1N-5N

CME ClearPort: 1N-5N

Open Outcry: 1N-5N

Clearing: 1N-5N

MXN/USD Monthly options

CME Globex: 6M

CME ClearPort: MP

Open Outcry: MO

Clearing: MP

MXN/USD Weekly Friday options

CME Globex: 1M-5M

CME ClearPort: 1M-5M

Open Outcry: 1M-5M

Clearing: 1M-5M

References

  1. See Triennial Central Bank Survey, Bank for International Settlements, September 2019, table 2, page 10, https://www.bis.org/statistics/rpfx19_fx.pdf
  2. Ibid.  See table 5, page 13.
  3. CME Group closed its Chicago trading floor as of the close of business Friday, March 13, 2020, as a precaution to reduce large gatherings that can contribute to the spread of coronavirus in line with the advice of medical professionals. Updates can be found at:
    https://www.cmegroup.com/company/information.html

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