Nicholas Pratt

Listed FX trading around the world: New regulations spur further growth

November 2022 in FX On Exchanges

Nicholas Pratt looks at the impact of regulatory developments on the continued growth of on-exchange FX trading and various venues’ plans to expand both their product range and geographic footprint.

The FX arms of major exchanges have enjoyed a fruitful year so far. A combination of regulatory developments, market volatility and rising interest rates have all had the effect of driving heightened risk management and hedging activities among FX traders and investors. Multi-decade high inflation, weaker economic outlooks in many regions, persistent geopolitical risks and high inflation have led central banks to raise interest rates. To reduce inflation, central banks have had to accelerate monetary policy tightening and hike interest rates.

On the regulatory side, the final stage of the uncleared margin rules (UMR) came into effect on September 1, bringing many buy-side firms into the regime. This has led many of them to take steps to enhance their initial margin efficiencies through central clearing. Another important regulatory development has been the Basel III rollout of Standardised Approach to Counterparty Credit Risk (SA-CCR). This allows netting but is also punitive for uncollateralized trades and trades with directional risks, properties which can be found in a large portion of FX swaps and forwards. Consequently, firms are turning to exchange-traded instruments like listed FX futures to help lower capital and risk weights.


Regulation factors aside, one of the biggest issues facing FX traders today is the availability of liquidity, says KC Lam, executive director and global head of FX and rates at SGX Group. “Liquidity is critical in today’s volatile markets – for some traders, choosing the right trading venue with deep liquidity is more important than the choice of FX instrument. As the largest and most liquid FX futures exchange in Asia, we have seen strong increase in trading activity in our marketplace. We see an increasing number of participants seeking liquidity pivoting to directly trading our benchmark FX futures contracts like INR, CNH, and KRW futures. And this is clearly seen in the various volumes and Open Interests records that we reported. This is also in line with the recent BIS Triennial Central Bank Survey where NDF INR and NDF KRW trading activities declined 17.2% and 7.2% respectively between 2019 and 2022 (BIS reporting period). However, during the same period, SGX FX reported growth of 48.2% for INR futures and over 433% for KRW futures,” he states.

In October 2022, total FX futures volume surged 49% y-o-y to 3.3 million contracts, with SGX INR/USD Futures volume up 17% y-o-y at 1.5 million contracts. SGX’ USD/CNH Futures contract remains the world’s most widely traded international renminbi futures. Average daily volume (ADV) in October 2022 reached an all-time high at US$7.8 billion, up 86% year-on-year. This was despite 10 days of lower trading activity with China’s markets closed during its Golden Week in October. SGX’s USD/CNH Futures volumes surged on 11 November to a new record turnover of US$15.8 billion.

“Similarly, for SGX INR/USD Futures contract, we saw the ADV for October 2022 reaching US$2 billion, up 23% year-on-year,” says Lam. The first week of November ADV is closer to US$2.4 billion. Meanwhile, October ADV of SGX KRW/USD Futures increased 25% y-o-y to a record US$121.2 million, while month-end open interest increased 88% month-on-month (m-o-m) to US$155.8 million. The exchange is also seeing traction in its new SGX THB/USD Futures contract which it started promoting in August this year. October recorded a DAV of 1,211 lots, making SGX FX the largest offshore venue for listed THB/USD futures.

In September, SGX FX officially launched its FX electronic communication network, SGX CurrencyNode, with the trading of non-deliverable forwards (NDFs), after obtaining its Recognised Market Operator licence from the Monetary Authority of Singapore (MAS). In October 2022, SGX FX Markets received exemption from the US Commodities Futures Trading Commission’s Swap Execution Facility registration requirements. This means that SGX CurrencyNode will be able to onboard eligible US participants for trading FX derivative products.

“Our goal is to create a best-in-class FX marketplace that elevates market participants’ access to both OTC and listed futures, aggregating market liquidity and serving all their FX hedging and trading needs with strong efficiency and liquidity.”

KC Lam

“Our goal is to create a best-in-class FX marketplace that elevates market participants’ access to both OTC and listed futures, aggregating market liquidity and serving all their FX hedging and trading needs with strong efficiency and liquidity,” says Lam.

“It is important to note that Singapore is the largest FX centre in Asia-Pacific and the third largest globally. In the recent BIS Triennial Central Bank Survey, trading activity in Singapore grew by more than the global average. Singapore’s share of global FX volumes rose to 9.5% in April 2022, up from 7.7% in April 2019. This growth has been driven by a strong and growing FX ecosystem, backed by MAS’ efforts to grow a network of key FX industry players anchored in Singapore, to better serve growing interest by global market participants to execute FX trades in the Asian time zone,” says Lam.

The exchange has also been looking to develop new clearing services to help clients deal with the impact of regulation. “We understand the challenges and rising costs faced by customers affected by UMR which impacts many institutions that must comply within a tight timeframe,” says Lam. “Initial margin rules have many specific technicalities, and the compliance process can be complex and new to many firms. According to ISDA, more than 775 counterparties with over 5,400 new collateral relationships would have to be in place.”

With the onset of inflation, higher interest rates and heightened market volatility, initial margins have also increased significantly, resulting in collateral management being a major concern for many SGX customers, says Lam.

“We have been working with our customers to offer alternative solutions to help achieve margin as well as capital optimisation. Besides our standard FX futures contracts, we also offer innovative SGX FlexC FX futures which can be bilaterally traded with an expiration day that can be any business day from the trade registration date. With this flexible date feature, one can replicate OTC FX Forwards, Swaps and NDFs, trade them, and register the deal with SGX for clearing. With FlexC, clients now have an alternate solution to OTC FX clearing. This approach offers a more effective way of mitigating counterparty credit risk with the flexibility of retaining bilateral trading relationships and provides lower margin costs and capital requirements,” says Lam.

Singapore’s share of global FX volumes rose to 9.5% in April 2022, up from 7.7% in April 2019.
Turnover of OTC FX instruments – Daily averages in April 2022, in millions of USD

One trend Lam has seen on the back of UMR and SA-CCR is the adoption of EFRP or Exchange for Related Position by some banks, which helps to reduce capital requirements and the cost of credit for them and their counterparties. “This is an area where we were told by our customers that they can have the best of both worlds, in that one can access all available liquidity (either on SGX’s exchange-traded FX or the OTC market), while moving related positions to a centrally cleared product,” says Lam.

In recent years, SGX Group has broadened and deepened its international footprint, says Lam. “Together with our subsidiaries, we have presence in 19 cities around the world and our members’ network spans across 27 cities. Global market participants see the value of SGX Group’s multi-asset offering across equities, currencies, and commodities as it offers them capital efficiencies through margin offsets. SGX FX’s combined customer base with BidFX and MaxxTrader is now much larger and we are seeing rising interest from diverse customers including fund managers, buyside firms, regional banks, broker dealers and commodity trading advisors (CTAs) from the US, Europe as well as Greater China,” says Lam

“We have also been a beneficiary of Singapore’s efforts to strengthen its position as a stable and trusted hub for finance, trade, wealth, and asset management as well as technology. More global market participants, including asset managers and family offices, have set up in Singapore,” says Lam. “Today, for example, there are almost 700 family offices here, up from fewer than 100 just five years ago. All these factors bode well for SGX FX.”


Eurex has enjoyed a fruitful year in terms of FX, says Tobias Rank, head of FX product sales at Eurex. The clearing body passed the 1 million contract milestone in September and had cleared 1.3million contracts as of October.

Open interest grew to 80,000 contracts, representing €8bn notional value and a 150% year on year growth. But it was not just the volume that enthuses Rank, it is also how this volume was distributed. For the first time, the majority of orders went through the order book as opposed to off-book in a roughly 60/40 split. This reverses a 40/60 split from the previous year.

FX Futures Eurex Monthly Statistics October 2022

“The order book activity allows for immediate adjustments – it shows liquidity on an anonymised basis. The larger trades tend to be transacted off-book. Market participants greatly benefit from having all options available to them as it gives them greater choice in transferring risk,” says Rank.

Why do we see this growth? A big driver for the use of FX Futures has been regulation and more specifically capital requirements, says Rank. One of these is the SA-CCR capital regime that came into effect last year which has led banks to try and reduce the size of their balance sheet, particularly when it comes to FX trades that can be punished quite heavily under the requirements due to their nature of being often directional and uncollateralised transactions.

As a result, market participants are increasingly using the full range of services an exchange has to offer, says Rank. “This includes the Exchange for Physical (EFP) service which is the simultaneous trade of an OTC instrument and an FX future in opposite directions. It has been used more because it enables clients to combine the best of both markets. Clients can open the trade in highly liquid OTC markets and then move their position into an FX Future to maximize capital efficiency.”

“The aim is to open the door to OTC participants by offering FX futures as a complementary tool to maximise their trading options,”

Tobias Rank

In terms of currency pairs, the focus for Eurex has been on EUR/USD and Euro crosses. In July last year, Eurex expanded its partnership with the Korea Exchange (KRX) to list USD/KRW derivatives at Eurex. These products are built on an existing link for equity index products.
“The Eurex/KRX Link enables trading on Eurex after the close of the Korean market. Not only does this help Eurex extend its presence in the Asia market, it also extends trading hours for participants and combines liquidity pools. It is a mutually beneficial arrangement which we have extended to FX and it now accounts for 47% of our FX volume,” says Rank.

Eurex is currently in discussions to launch similar partnerships with other exchanges around the globe and to a wider range of instruments. “If there is sufficient demand and sufficient liquidity, we will look at establishing a cooperation,” says Rank.

The use of the order book has to date focused on smaller execution sizes with most firms choosing to execute larger block trades outside the orderbook in order to minimise market impact. In June Eurex saw its largest block trade via the EFP model (57,000 contracts). “There has been no big bang as a result of regulatory developments. But the extension of Uncleared Margin Rules has resulted in a steady growth in market adoption as firms get more comfortable with the use of FX Futures as they assess their options in light of growing regulatory demands,” says Rank.

Another focus is the relevance of market data services. In 2015, Deutsche Börse Group (the parent organization of Eurex) acquired the German FX trading platform 360T in an $800 million deal in pursuit of the hybrid trading model that combines the OTC and exchange trading environments. Since then, 360T has become a key component in the distribution of valuable data feeds for both spot and swap points across the curve based on the liquidity providers quoting into 360T. This data is then published and distributed to both banks and buy-side firms.

Eurex has also expanded its range of FX futures with five new currency pairs on emerging market currencies. Cash settlement enables access to these products without the need for a complex settlement infrastructure. “Eurex offers numerous benefits from a market access perspective. The integration with 360T enables trading of FX futures alongside OTC FX instruments and even allows for the trading of block trades and EFPs on a fully electronic and STP basis,” says Rank. “This is important in the current environment, especially when we talk to participants that are not FX futures traders yet but are familiar with 360T and OTC instruments.”

In terms of future plans, Eurex is set to introduce Canadian dollars futures to complete its G10 range. It is also promoting the launch of flex futures – additional contract versions to support off-book trading that can be customised to meet their individual needs. In this case, the futures have a flexible a maturity date. “The aim is to open the door to OTC participants by offering FX futures as a complementary tool to maximise their trading options,” says Rank.

The US

Exchanges have been key players in the growth of the FX futures market by reducing some of the liquidity barriers and introducing new contracts, thereby allowing market participants to access wider OTC liquidity pools

In late October, the Chicago Mercantile Exchange (CME) introduced a new suite of overnight index futures based on the euro short-term rate. The launch is in response to the uncertainty over EU rates. According to the US-based exchange, the futures will provide an efficient method of hedging European money market rates. They come in two distinct contracts – three-month €STR futures and €STR basis spread futures. These contracts enable granular price discovery across the forward curve, IBOR/OIS basis trading, as well as managing cross-country basis spreads and price differentials between the EU and US interest rates, states CME.

“As the world continues to adapt to trading interest rates based on overnight benchmarks, we are pleased to further support the transition by offering €STR futures contracts,” said Mark Rogerson, EMEA head of interest rate products, CME Group. “At a time of continued economic uncertainty, our new futures will help clients price and manage risk in overnight money market and repo rates across European markets.”

Source: TriOptima

The product launch also comes at a time when cleared FX futures and options have reached an all-time high. According to CME Group data, more than 3 million contracts were traded on September 14 for a notional value of $272 billion. The average daily volume for CME’s FX futures and options was 1.463 million contracts and around $133 billion in notional volume. This was slightly above the previous peak in March 2020 and a 50% increase on the figures for September 2021. The exchange group credits the increased adoption to regulatory factors but it is not just the uncleared margin rules (UMR) that are serving as a catalyst. Another theme getting increasing attention is the SA-CCR. These new rules governing how banks deal with counterparty credit risk is replacing the Current Exposure Methodology (CEM).

The essential differences between the two regimes are:

  • SA-CCR is more risk sensitive and less focused on gross notional.
  • SA-CCR allows netting benefits – and so, benefits the migration of risk to one counterpart.
  • SA-CCR improves recognition of collateral/recognizes margin as offsetting to counterparty risk.

“For the FX market, and for large bank liquidity providers in particular, these differences create new decisions and trade-offs around how best to optimize trading,” states the CME Group.

“While the use of clearing (OTC cleared or Listed FX) can help achieve benefits via netting and lower capital, it introduces a cost of funding for the margin requirements, which don’t exist on bilateral FX FWDs and Swaps. A study by TriOptima showed that, on balance, holding cleared positions as futures reduced capital costs by at least two thirds, but that the cost of funding the margin also needed to be considered to calculate the all-in cost or benefit.”


October was a notable month for the Dubai Gold and Commodities Exchange (DGCX). It recorded the second highest daily volume growth since April 2020. Pakistani Rupee was the highlight of the month as it continued to perform well in ADV of trades since its introduction into DGCX’s portfolio, recording 6,402 trades in October. There was also a healthy pickup in trading for DGCX’s G6 currencies portfolio with the euro, pound sterling and yen all performing well, according to the monthly figures from the UAE-based exchange. The overall G6 currency volume of trades stood at 229,716 lots on a year-to-date basis.

“We are delighted to launch the Israeli Shekel Futures Contract, which is a major step that builds on the United Arab Emirates’ strategic relationship with Israel,”

Les Male

The exchange has also sought to expand its product range. In June it listed its first Israeli shekel futures contract. According to the exchange, the move reflects its “strategic focus on diversifying its product offering in the FX space as it grows its currency segment”. According to data from Thomson Reuters, the Israeli shekel is the top performing emerging markets currency since the pandemic impacted financial markets in early 2020.

“We are delighted to launch the Israeli Shekel Futures Contract, which is a major step that builds on the United Arab Emirates’ strategic relationship with Israel,” said Les Male, DGCX chief executive at the time of the launch who has now taken up a new role at management consultant ELEM Capital. “As the second largest trading hub after the United States, Israel represents an important market for us, and we see the renewed ties between the countries leading to strong currency volume growth over the coming years.”

The listing of shekel futures came after DGCX received a permit from the Israel Securities Authority in 2021, enabling qualified Israeli corporations who trade on a proprietary basis to become members of the DGCX and to use its trading services. Since May 2021, Israeli members have also been allowed to act as market makers on the DGCX platform.

“The new product enhances our ability to offer market participants with a greater depth of liquidity across our key currencies, as well as offer a diverse range of instruments to meet their hedging and risk requirements,” added Male.  “As we look to expand our role as the leading Middle East exchange for the trading of commodities, energy, equities and currencies, the listing of DILS is strategically important; a key entry for us as we set out to provide more options for institutional traders on the DGCX.”