CME widens footprint and connectivity

Derek Sammann, Chicago-based managing director of FX products at the CME, told FX Week one of the targets for the exchange this year is to increase flow from domestic currencies. "Ninety percent of our FX liquidity is concentrated in our top six currency pairs. While this broadly equates with Bank for International Settlements(BIS) figures in terms of global liquidity, we hope to further improve this offering by bringing more domestic currencies to the international market."

As part of this effort, the exchange plans to hire a head of Asian FX sales in its Hong Kong office, while adding an FX sales role under Andy Durrant, head of EMEA FX sales in London. The exchange is also adding a new FX options specialist, as well as a client-segmented FX salesperson in Chicago.

However, concerns have surfaced regarding CME's connectivity. It has been suggested that Chicago-based black box traders enjoy an unfair advantage because the CME, and FXMarketSpace, its joint-venture platform with Reuters, use one central matching engine. A market source said: "Because algorithmic traders in Chicago are the first to view any CME price, those based outside the location are forced to trade behind everyone else."

In contrast to CME, rival electronic platform EBS has matching engines in London, New York and Tokyo. EBS also has broker nodes in these three cities, along with Sydney, Singapore, Hong Kong and Zurich.

Sammann countered suggestions that Chicago-based traders have the upper hand, and said the CME has taken strategic steps towards improving global connectivity. The exchange recently launched CME LNet, a co-location facility that went live in December 2006. CME LNet offers reduced network latency because the co-location facilities are directly connected to CME's fibre-optic transport, which more than halves the average internal round-trip time for orders, to 10 milliseconds. Global connectivity is also supported by CME's telecommunications hubs in London, Singapore, Gibraltar, Dublin, Milan, Paris and Amsterdam. This broadens the exchange's global accessibility while providing reduced connectivity costs. Sammann said CME is considering an eighth hub in Asia.