The FX Report

FX Futures | FX Options | FX Link

In this edition, keep up with our latest product developments, learn about the forces driving them. Stay connected to the changes in our market and the wider FX marketplace.

  • 14 Oct 2021
  • By CME Group

Stay connected to developments at CME FX


$77B average daily volume in futures and options
$288.5B in open interest
+18% increase in open interest YoY
*Through September 30, 2021

Listed FX options: a solution to pressures from uncleared margin rules

September 1 was the go-live date for phase 5 of uncleared margin rules (UMR), bringing firms with an aggregated average notional amount (AANA) of €/$50 billion into the UMR fold. Yet, instead of being a finish line from which the market can move forward, this go-live date may be the start of larger challenges for the market.

Phase 5, which industry participants estimate will affect 150-500 entities, is likely to impact a large number of real money accounts ‒ the asset managers and pension funds who typically run large, directional books but who have never posted any initial margin (IM) and typically have never used a prime broker (PB), preferring to not have concentration on one bi-lateral counterparty.

“The dialogue we’re having with our institutional investor base around cleared solutions to help manage UMR obligations is evolving rapidly. FX blocks and EFRPs specifically present an opportunity to pair dynamic OTC execution strategies along with high-quality market making, and then wrapping that result in a cleared product.”

- Richard Condon, Morgan Stanley, Head of hedge fund sales

“Given the impacts of UMR, we believe the growth trend in listed FX futures and options will continue and that the increased usage of EFRPs and blocks for asset managers in particular are a logical part of that trend given their similarities to trading in the OTC market.”

- Chris Callander, Societe Generale, Head of FX futures sales and trading

Of all the products in UMR’s spotlight, FX options stand out as a potential source of significantly higher initial margin requirements for impacted entities. This is both because of how ISDA SIMM works and because the products most used for a delta hedge (forwards and spot) are excluded from the regulatory requirement.

Partly because of UMR, listed FX options have seen an increase of 33.8% year-over-year in the number of end user customers. These customers can take advantage of:

  • Margin and capital efficiencies through the netting of all positions against a highly regulated CCP.
  • The ability to easily include delta hedges, as well as model differences for the IM calculation.
  • See our recent paper (UMR Phase 5: A real challenge for real money) for more, including analysis from OpenGamma showing margin savings of up to 86% generated from trading listed FX options.

CME Group created several resources to help familiarize market participants with the structure of the listed FX options market.

FX Options Vol Converter

The FX Options Vol Converter converts listed CME FX options premiums, fixed strike data, rules, and formats into an OTC-equivalent volatility surface so that you can:

  • Evaluate OTC-equivalent pricing across eight tenors and a full delta surface, delayed only by 15 minutes.
  • Drilldown into the underlying CME contracts driving each value.
  • Act on the optimal trade, with the ability to analyze price divergences in all deltas and all maturities.

View the tool

CME Group Volatility Index (CVOL)

Based on simple variance on G5 pairs, CVOL delivers a more representative measure of the market’s expectation of 30-day forward risk, so that you can:

  • Gain an accurate picture of implied market volatility for seven currency pairs, plus an aggregate index for the G-5.
  • Compare current volatility to historic volatility going back at least two years.

Explore CVOL

“UMR has helped create a growing appetite to trade listed FX products, especially via block markets, which offer additional liquidity that is more synonymous to the existing OTC market. Blocks of FX futures and options as a mechanism for accessing clearing using an OTC trading mechanism is especially strong from institutional asset manager customers.”

- Lee Spicer, BNP Paribas, Global Head of High Touch Execution

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Find FX Link prices on Bloomberg


“LK” + <Currency Pair> + <CME Expiry Month Code> + <Expiry Year (YY)>

Examples – Dec 2021 expiry:

Euro: LKEURZ21 <Curncy>

Japanese yen: LKJPYZ21 <Curncy>

British pound: LKGBPZ21 <Curncy>

Australian dollar: LKAUDZ21 <Curncy>

Canadian dollar: LKCADZ21 <Curncy>

CME FX Link: EUR/USD minimum price increment (MPI) reduced to 1/20 of a pip

FX Link provides the only cleared, capital-efficient pool of firm liquidity for FX swaps, via a transparent central limit order book on CME Globex, to trade spreads between OTC FX spot and CME FX futures.

Following the success of MPI reductions in CME listed FX futures, CME Group conducted a detailed order book analysis of the EUR/USD contracts traded on FX Link. The results, together with client validation, supported the reduction of the MPI for EUR/USD FX Link contracts – which is a tradeable spread between spot FX and FX futures.

Effective September 20, the MPI of EUR/USD FX Link contracts was reduced from 1/10 of a pip (0.00001) to 1/20 of a pip (0.000005).

After this reduction, we have witnessed strong traction and support in EUR/USD FX Link, as evidenced by a 27% reduction in the average top of book (TOB) bid-ask spread and a 52% increase in average daily volumes:

  • Liquidity: We have witnessed a 27% reduction in the average TOB bid ask spread, from 0.11 in Q3 prior to the MPI reduction to 0.08 post the reduction.
  • Time at the new MPI: The TOB bid ask spread was at the new MPI ~40% of regular trading hours (RTH).
  • Volumes: Post the MPI reduction, volumes are up ~52% from pre-cut averages in Q3.

Discover FX Link

FX futures: why they matter in asset management

In September 2021, CME Group and 7orca collaborated to discuss why currency overlay managers are using futures, and why 7orca is using CME listed FX products specifically to gain the exposure and returns they require.

Notable excerpts from Holger Bang, Head of Currency Overlay at 7orca, a €8bn specialist manager:

On FX futures liquidity:

"FX futures probably provide the firmest liquidity. Once a lot is traded in the central limit order book, the deal is concluded without last look. "

On counterparty risk:

“In situations of market stress, the picture can deviate largely. FX futures become even more appealing as, unlike FX OTC forwards, they do not bear counterparty risk to a financial institution. This feature is particularly important during periods of market uncertainty and has helped the widespread acceptance of FX futures by our clients to help mitigate their counterparty risk.”

On potential benefits to the buy-side:

“Buy-side investors normally act as market taker, hitting the respective side of each intended trade and paying the bid-ask spread. Trading FX futures on the exchange enables buy-side customers to act similarly to market makers and place orders passively. This offers an attractive potential of saving bid-ask spreads during trading.”

New Zealand dollar MPI cut delivers tighter spreads, lower cost of execution

Participants continue to benefit from our recent minimum price increment (MPI) reduction in NZD/USD futures. Following the MPI reduction, notional open interest reached $3.1 billion in September, a 12% YoY increase. NZD futures average daily volume of 28K is +12% vs. pre-cut levels, driven by increased participation from asset managers (ADV +52% vs. pre-cut levels).*

The reduction in NZD/USD futures from one pip (0.0001) to half of a pip (0.00005), along with MPI cuts in AUD outrights and G5 FX futures quarterly roll spreads, have delivered enhanced price discovery and enabled customers to trade listed FX more cost effectively.

For NZD futures*:

  • The top of book spread was at the new MPI for 15% of the trading period.
  • On average, the new MPI delivered a 34% lower cost of execution.

*As of September 30, 2021. Pre-cut ADV measured as the 3-month prior to the NZD MPI reduction.

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