Eurex hopes to steal march on rival CME with FX launch

Eurex is hoping to launch foreign exchange futures and options during the first half of 2014, according to a source familiar with the situation, as it continues to finalise its on-boarding process with its third-party settlement provider.

The Deutsche Börse-owned exchange had to delay its original launch date of October 7 due to a control issue at a top-tier bank. The bank, which is still working with Eurex, will be providing the exchange with settlement services to FX settlement utility, CLS.

"It's likely there will be some clarification during the first half of 2014 – probably during the second quarter rather than this one," says the industry source. "Exchanges aren't always the first priority in these situations."

Eurex has gained regulatory approval and has more than three European market-makers signed up to provide liquidity for its EUR/USD, EUR/CHF, EUR/GBP, GBP/USD, GBP/CHF and USD/CHF pairs. Eurex declined to pinpoint a specific date for the launch.

CME Europe, which will be a direct competitor to Eurex, also experienced delays in launching exchange-traded FX futures and options, but it was unable to provide a specific timeline for the time being.

The Chicago-based exchange had problems as a result of technical issues around the delivery of physical currency, which it outlined in a note sent to clients in September.

"We continue to work closely with regulators and through the regulatory process," says a spokesperson for CME Group.

Forex, traditionally an over-the-counter market, has been moving towards an exchange-traded model as regulatory initiatives in the US and Europe made trading some OTC products more expensive.

A recent report by research firm Greenwich Associates claims that
futures trading activity could rise as much as 50% should there be a 5% move away from OTC FX derivatives, thanks to increased capital requirements, initial margin and mandatory clearing.

Once non-deliverable forward mandatory clearing takes effect in the US, which is expected to happen sometime this year, the trend towards futures could accelerate even more, market participants say.

Ice, Hong Kong Exchanges and Clearing and the Dubai Gold and Commodities Exchange also offer FX contracts, with emerging markets such as China, India and Brazil becoming an increasing focus for exchanges as interest in those markets grow.