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FX news: Block trades beat the regulator

In a meeting with Will Patrick, associate director of FX products at the CME, I heard of the current boom in block trades in currency futures.

While such trades occur along the curve, the real growth has been in contracts in emerging market currencies (particularly the Russian rouble and Brazilian real) with a maturity longer than one year.

Patrick told theweeklyFiX: “Block trades in FX futures are agreed bilaterally off-exchange between dealers before being given up to our CCP clearing house. What we have seen since the second half of last year is a spike in these kinds of trades being submitted; they have occurred as far as five years in our Russian rouble contract. These volumes are significant and mostly in illiquid tenors and show a trend we cannot ignore. More recently we listed additional Brazilian real contracts going out five years to gauge the market’s appetite and have already seen a healthy growth in open interest and early signs of a similar pattern.”

There has been some concern over the implications of the authorities forcing FX swaps or forwards into clearing or a central counterparty model. But here is an instance of the market enthusiastically embracing such a scenario to its benefit, effectively trading forward FX cleared through a CCP to the benefit of counterparty credit exposure.

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