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Foreign Exchange

Exchange Trading: CME eyes FX options as area for innovation

The Chicago exchange aims to make currency option trading easier, bridging the gap between the cash and exchange markets

The Chicago Mercantile Exchange is enjoying phenomenal success in its foreign exchange business. Total FX volume grew more than 50% in 2004 and e-volumes were up 128% from 2003. Among these FX products, FX options are a rapidly growing market. The latest Bank for International Settlements survey indicates that FX options are the fastest-growing part of the global currency derivatives market, with turnover growing by 95% between 2001 and 2004. Such growth acts as a timely reminder for such institutions as the CME of the need to make the market more transparent and to develop new tools to facilitate option trading.

In April, the CME launched new euro and yen options contracts, with European-style expiration, on its electronic Globex platform. A choice between European-style and American-style expiration gives customers flexibility in determining investment strategies. It also provides alternative tools that are more in line with the over-the-counter market.

Clients can view the real-time market prices for these options contracts on the SuperDerivatives SD-FX platform. In addition, SuperDerivatives' large client base can view indicative volatility levels for the CME's FX options contracts.

In June, the CME also announced a six-month fee reduction on FX options trading on its electronic Globex platform.

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