There were some questions about whether or not they would actually be launched. But the listing by Eurex US of currency futures might ultimately prove far more significant than the arrival of just another service provider in what is becoming an increasingly crowded FX market.
Doubts about the commitment of the Swiss-German Eurex derivatives exchange to its US subsidiary rumbled through almost to the point of the FX contracts' launch. But ultimately, the capability of Eurex US to provide near 24-hour trading earned a stay of execution as listing the FX contracts in Frankfurt was not a viable alternative due to the latter's restricted operating hours. So Eurex US got the green light and opened for FX trade on September 23.
Eurex US has made much of the size of the contacts it is offering, which it says align it more closely with the still dominant over-the-counter FX than those of the Chicago Mercantile Exchange (CME). Ultimately, contract size will probably prove less relevant.
The FX market is certainly big enough to have two major exchanges competing for business. What will prove more interesting is not whether or not Eurex US can capture business from the CME, but whether its arrival actually speeds the market's move to an exchange model. This has been discussed for years and is an argument that has been gaining momentum.
Not surprisingly it is a theme that Eurex US chief executive Satish Nandapurkar, whose background is in FX, warms to. "FX was a market dominated by the big banks. They were able to extend credit to who they wanted and keep a tight rein on liquidity. The best prices were only available on a consistent basis between themselves," he says.
"But interbank liquidity has started to move to new platforms that offer more transparent and anonymous trading. FX is regarded more and more as an asset class and money has started to go to CTAs [commodity trading advisers], hedge funds and prop shops. These players want to put trades on quickly and anonymously without the need for credit checks," he adds.
It is natural that some FX players will resist any move to an exchange. As well as perhaps losing control of the business, some FX players have expressed a concern about who will control and regulate the market if it does move to a single exchange.
The arrival of Eurex US means that there is a real alternative to the CME in the exchange-traded sphere. There are uncanny parallels to the emergence of electronic broking in the early 1990s. Back then, a consortium of banks formed EBS to prevent Reuters gaining hegemony over the market. What will be interesting now is whether the arrival of Eurex US in FX acts as the final catalyst for the market to migrate to the exchange-traded arena because it does provide a choice, which will prevent the creation of a monopoly.