Cboe FX: Bringing differentiation, innovation and choice to FX participants

September 2021 in Partner Content

Cboe FX continues to set the standard in FX with a proven history of technology innovation, reliable liquidity provision and its uniquely client-centric approach. e-Forex spoke to James Arrante, Director, FX Product Management and Ben Leit, Global Head of FX Sales at Cboe Global Markets about the continuing drive to ensure clients have access to a comprehensive range of execution options through the Cboe FX suite.

Ben, can you start by explaining some of the changes you’ve been working on to increase the different execution methods available to clients?

BL: CBOE FX is one of largest sources of spot liquidity in the market and that, coupled with our curation process, is what makes our platform stand out. But in addition to offering that market-leading liquidity component, we also want to make sure our clients have all the execution tools they might need at their disposal. We started giving our clients more execution tools around five years ago when we brought in a Full Amount offering, which can consolidate streaming price feeds from several liquidity providers into a single best price. More recently, we added hidden peg functionality to our suite of services, again to ensure that our clients have as much optionality as possible.

Are you seeing any significant changes or trends in how clients are trading FX?

BL: One of the most significant area’s we’ve seen has been the growth in NDFs. Cboe FX invested in this area very early but the past year has really seen an uptick in the number of banks and active traders looking for ways to electronify their execution in NDFs. As a result, we’ve seen significant highs in our NDF volumes and our average daily volumes in key NDF pairs continues to climb. This complements what we do in spot and we believe that NDFs will go down that same road and also become a highly electronic market. That is a really big theme for us at the moment.


Cboe Spot offers full depth-of-book view, centralized price discovery, anonymous market access,
streaming quotes, full amount trading and robust real-time pricing and reference data

James, given this rise in demand for NDF execution, has Cboe FX made any changes to its offering to support this further?

JA: We now offer two different platforms for clients looking to trade NDFs. We have Cboe SEF, that’s our longest standing NDF platform and the one which has seen significant levels of growth over the last year or so. And then last year we also introduced Cboe Swiss, which is our new ‘off-SEF’ venue which we launched to offer liquidity opportunities to our clients in emerging market NDFs. As Ben has already mentioned, our aim is to give clients optionality in their execution method and we know that for some clients trading on a SEF works for them, while other clients will prefer to use the off-SEF platform. Over the last couple of months we’ve also added the Full Amount style execution tools to both platforms, which again shows how mindful we are of the need to offer choice to our clients.

On Cboe Swiss we offer trading in the most actively traded emerging market NDFs, which tend to be the South Korea Won and Indian Rupee. But having said that, we recently had a high in Brazilian Real and offer the LatAm suite as well, so Peru, Columbia and Chile, in addition to the Chinese Renminbi. Asian NDFs are a bit more electronic than LatAm which means LatAm NDFs might be slightly behind in terms of the liquidity available right now, but that all seems to be changing pretty quickly. We’re excited to be able to keep adding to the suite of execution options that is available for NDFs as this market grows and continues to become more sophisticated.


Cboe Swiss provides market participants access to deep Non-Deliverable Forward (NDF) liquidity on emerging market currencies

Sourcing liquidity has been a key area of focus in recent months. How do you support clients on this front?

BL: Liquidity conditions right now are pretty good and there hasn’t been as much volatility which does help improve liquidity conditions to an extent. Clients can also rely on our Full Amount platform to handle larger size executions. The fact that we can curate a liquidity pool and aggregate sources is a huge benefit for customers. Getting good liquidity in a larger order size in a liquid pair is easy in FX, but we know from clients that it is not so easy to find larger size liquidity available in emerging market pairs at certain times of the day. By having invested significant time and resource into developing the Full Amount product, we’ve been able to improve liquidity conditions for a lot of our customers that may have not had access to this, especially the big banks. It’s now a commonly used tool among our clients in both calm and volatile markets.


Currently available contracts on Cboe SEF

And finally, are there any particular areas or shifts you are seeing in the market which you’ll be paying close attention over the coming months?

JA: A very interesting key initiative which we launched last year was Cboe FX Central, our new central limit order book (CLOB) which introduces a further element of choice for clients. The platform sits as an alternative to traditional CLOBs available in the primary markets as it rewards liquidity providers with faster market data when their liquidity is at, or close to, the best bid or offer. This adds another execution method to our suite but it also brings a much needed element of choice to that space as well.

We continue to see volumes on the primary markets’ CLOBs decrease and there has been more volume shifting into curated liquidity pools. Having said that, the primaries in CLOBs are still very important for the overall marketplace from a market data perspective and price discovery perspective, so it will be interesting to see how that that sector evolves. Primary markets are going through significant migrations following key acquisitions from CME and the London Stock Exchange Group. We’ve introduced our own CLOB which will give our clients an alternative to use, especially while those businesses are going through this transitionary phase. Market data is vitally important in FX and if liquidity continues to be removed from CLOBs then that leaves a significant void which we expect Cboe FX Central will help to fill as liquidity moves more off CLOBs and into curated pools.