Ice inherited an existing FX suite of products when it took over the New York Board of Trade and its Finex subsidiary in Dublin. These have long offered FX contracts, most notably the dollar index, which is a moderately successful niche product. Activity is said to be around 20,000 contracts a day.
The exchange says it will launch bigger contracts with a nominal size of 1 million units on 11 currencies plus the dollar index in November. These will be fully fungible with its existing products. The launch of the new futures contracts, known as Ice Millions, is being spearheaded by Ray McKenzie, the exchange’s vice-president and head of sales. McKenzie knows the FX futures business inside out, having run one of the largest cash to futures arbitrage teams for years when he worked at Morgan Stanley, before he moved over to the CME, which currently dominates the exchange-traded FX business.
Of course, those of us with half-decent memories will recall that when Eurex US tried to launch bigger contracts to bring it more in line with the OTC market, it failed dismally. But that was not because of any inherent fault in the contracts, but because of poor technology that allowed the then prevalent liquidity arbers, aka the sniping prop shops, to pick off the liquidity providers. Ice claims its technology, “features the fastest trade execution times in the futures industry today.”
The exchange has also thrown the gauntlet down in terms of costs. The standard commission charge is $1.35 per side, or per million currency unit, inclusive of exchange and clearing fees. This is far cheaper than the CME’s headline rate of around $3.50 per side and below EBS’s starting tariff of $2.50 for a passive and $5.00 for an aggressive trade. However, EBS does have a steep volume discount fee structure in place as well.
Of course, low fees are irrelevant if there is no liquidity. I hear that Ice has signed up a decent number of prominent and genuine market makers, rather than just the motley collection of prime brokers and various prop shops connected to other platforms. I imagine that the CME in particular will be watching how Ice fares with considerable interest. Not surprisingly, McKenzie is upbeat. “Institutional traders, hedge funds, commodity trading advisors and retail traders have been seeking greater efficiencies in terms of cost, transparency and straight-through processing in the FX markets. By offering futures contracts that mirror cash market trading conventions, but with enhanced efficiency and the vital benefits of centralized clearing, Ice Futures US will bring a valuable new FX tool to market participants globally,” he says.
