CME clears FX cash-settled forwards for first time

Service debuts in January with two EUR/USD trades

Currency dollar euro cogs
EUR/USD: the exchange marked its debut with two such trades on January 15

CME Group has carried out its first clearing of foreign exchange cash-settled forwards, completing trades for Citi and global asset-management firm Eaton Vance Management.

The exchange marked its debut in the space with two EUR/USD trades on January 15.

The new service will allow CME’s clients to use their capital more efficiently when trading G10 foreign exchange, said Sean Tully, global head of financial and over-the-counter products, in a company statement. 

He highlighted the arrival of uncleared margin rules, which will come into effect in September for companies with more than $750 billion in derivatives notional, as a factor. 

“Now, we are seeing significant interest from banks and buy-side clients to voluntarily clear FX products for the capital, margin and operational efficiencies,” Tully tells FX Week.

CME increased its volume of NDF clearing in 2018, and this, added to its cash-settled forwards clearing, should give the exchange the scope to help institutions dampen risk, according to Tully. 

The derivatives marketplace offers clearing for 26 currency pairs of FX cash-settled forwards and 11 pairs of NDFs.

…we are seeing significant interest from banks and buy-side clients to voluntarily clear FX products for the capital, margin and operational efficiencies
Sean Tully, CME Group

“Eaton Vance Management strives to reduce the total cost of clearing for our investors. We are big supporters of central clearing, and now is the time for the FX marketplace to make buy-side clearing of CSFs (cash-settled forwards) and NDFs (non-deliverable forwards) [a] reality,” said Michael O’Brien, head of global trading at Eaton Vance Management, in the CME announcement on January 28.

“Industry milestone”

Christopher Perkins, global head of OTC clearing and prime brokerage at Citi, also celebrated the new move, calling it an “industry milestone”.

“With uncleared margin rules impacting buy-side clients over the next two years, Citi is excited to leverage our leadership in the FX prime brokerage and clearing space to help clients execute and clear their NDFs and CSFs at CME,” Perkins said in the statement.

CME says it has notched up average daily volumes of more than $91 billion so far this year, across listed FX futures and options, and more than $260 billion of open interest.

Update February 1, 2019: this story has been amended with a quote from Sean Tully.

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