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Foreign Exchange

CME to allow easier crossing

The revival of the CME’s FX futures product line has been one of the financial success stories of the past decade.

However, for a long time, its option contracts have languished badly behind. Frankly, the contracts were quite simply wrong, being American-style rather than European, and also they still have a weird expiry and settlement cycle which makes them more ‘exotic’ than their more popular vanilla OTC cousins.

Derek Samman, the CME’s managing director of FX products, will be fully aware of these issues. Prior to moving over to the exchange, Samman carved out a solid reputation in the OTC options market and he has made no secret that he sees the product as a great area of opportunity for the exchange.

This month, the CME is rolling out a new API, CME Clearing360 Trade Reporter, which will make it easier to cross privately-negotiated option (and EFPs) trades across the exchange. Some OTC players will no doubt ask ‘so what?’ However, it should be remembered that there are many buy-side funds that are restricted to dealing purely on regulated exchanges. This should make it easier for them to hedge FX exposure, despite the arcane complexities of the CME’s options, and more prescient banks may well decide that it is worth getting a slice of the exchange’s current $3 billion a day option flow.

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