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Foreign Exchange

Open interest in FX hits new record on CME; volumes up 14%

The CME Group, the world’s largest regulated exchange for currency futures, saw record open interest in currency futures contracts on Monday, after it reported rising FX volumes in February – though overall FX volumes are down year-on-year.

Open interest on the CME – the total number of open contracts in the exchange’s central limit order books – reached a new high of 1,983,791 FX contracts with a notional value of $237 billion. The previous record was set on June 19, 2007. At the same time, daily average volume was down 9% from February last year, although volumes rose 14% from January. An average 848,000 FX contracts changed hands daily on the CME in February, with an average daily notional value of $110 billion.

“We’re in an environment where traders are doing less intraday trading in major currency pairs, but they are still holding positions either in FX or in other asset classes that need to be hedged in the FX futures world,” says Roger Rutherford, global head of FX at the CME.

“More and more people are coming to the CME to hedge those in the futures market and are holding on to those positions for longer.”

The CME’s low volumes are no exception, with most trading venues that publicly report volumes suffering a drop-off in recent months. Last month, ICAP reported January spot FX volumes on its EBS platform were 23% lower than the previous year.

Greater interest in ‘growth currencies’

Rutherford attributes the lower volumes to the general risk-off tone, largely stemming from uncertainty surrounding the euro, as well as the threat of central bank intervention in currencies such as the Japanese yen and the Swiss franc.

“These are three big markets that have really been impacted by events beyond anyone’s control and this has had a noticeable effect on intraday trading volumes,” says Rutherford.

However, while volumes on the leading currencies such as EUR, JPY and CHF are lower, traders are looking toward growth-market currencies such as the RUB, MXN and BRL, and the benefits of trading products linked to these currencies on regulated exchanges, adds Rutherford.

The CME's trading volumes in the Mexican peso, for example, are up 29% in the first quarter of 2012 compared with the same period last year.

“The value proposition of exchange-traded derivatives in growth markets is gaining more attention with rising liquidity, enhanced price discovery and what is perhaps now more important than ever, eliminated counterparty credit risk,” says Rutherford.

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