Interview: It's about time to access the benefits of listed FX

Listed FX volumes and open interest are continuing to grow at Eurex. With a strong December roll, the exchange traded more than 600,000 futures contracts in 2020 despite the COVID-19 crisis. Progress is also visible in market access. Most recently, Barclays and DZ PRIVATBANK S.A. provided Union Investment access to Eurex FX.

Jens Quiram, Global Head of FX at Eurex talked to Gary Saunders, Global Head of Prime Derivatives Services at Barclays, Alexander Pack, Co-Head Markets Barclays Europe and Head of Distribution Germany, Austria and Switzerland, Christoph Hock, Head of Multi-Asset Trading at Union Investment and Frank Tüffers, Head Integrated Execution Services, DZ PRIVATBANK S.A. about the benefits of listed FX in navigating current market environment.

You are looking to use FX Futures at Eurex. Why now?

Christoph: By switching to Eurex FX with our German Funds we have seen significant cost savings in exchange execution. Now we wanted our Luxembourg based business to also benefit from these savings. The netting and transparency offered make FX Futures a core part of our FX execution strategy. In addition, we see significant benefits by using a European clearing house like Eurex Clearing providing us regulatory certainty under EU regulation.

Alex: From a Barclays perspective, we are a client led franchise and want to make sure we can support clients across the full spectrum of products and services. We work closely with Union Investment and DZ PRIVATBANK S.A. and the support for these products was a natural evolution of our Eurex offering.

Frank: For DZ PRIVATBANK S.A., it’s probably a combination of the two! We have direct access to the Eurex markets, which gives us more control over the execution of listed products but of course, we are always client demand driven and will look to support execution on the markets required by our clients. We’ve also seen the growth in volumes over the last year as the market gains traction.

How do you access liquidity in futures? How does this differ from OTC FX?

Christoph: Typically, we are using a combination of OTC Futures liquidity such as blocks and exchange for physical or trading directly via the orderbook. This allows us to benefit from the depth of liquidity the OTC markets can offer when trading in significant volumes. In terms of the difference to the OTC markets, we find that the FX futures orderbook always gives a transparent price to base execution decisions upon.

Frank: We are also relatively agnostic in terms of execution mechanism and will look to ensure we are achieving the best execution outcomes for our clients. As highlighted, the direct access to Eurex allows us to directly post and execute orders on the exchange, removing reliance on third parties to access the market on our behalf.

Has adding the FX products been a challenge during the recent events?

Gary: This type of enhancement is business as usual for Barclays. Even with people working remotely, the process has been very smooth, and we’ve managed to add the products added relatively easily. We could largely re-use the existing connectivity to Eurex, and the legal process was simple given the products are covered under our existing Eurex membership.

Christoph: At the risk of making this an unexciting question, we also have found this an easy process. We already have the products within our product scope and our clearing and trading partners on the call have made the overall process straightforward.

What are the most important considerations when looking for a venue to clear FX Futures?

Gary: From a clearer perspective, we are venue agnostic but look for consistent operating processes and simple onboarding processes. Eurex has helped make the onboarding processes as smooth as possible and been supportive throughout.

Christoph: As previously mentioned, we look at the liquidity, both on and off orderbook and cost of execution. Looking forward, we also want to be able to clear all our FX products under a single CCP and look forward to the launch of the NDF clearing and ETD FX options services at Eurex.

Gary: Adding to Christoph’s comment, a wide range of collateral eligibility is also useful for clearing members and provides us with flexibility to fund initial margin using the most efficient assets. Being able to clear all products under a single CCP also helps efficiencies for clients.

How do you see the future of FX Futures?

Christoph: We see the market continuing to grow, and more of our peers are looking at adding FX Futures to their capabilities. As an industry we need to continue to work together to bring down the costs of FX Futures and ensure that the bridge between OTC and futures markets is fully formed. This will mean that OTC liquidity depth can be found in the futures markets and vice versa. This is particularly important for some of the more illiquid currencies and should benefit the FX market.

Frank: We also think that there will be continued growth in FX Futures and clients continue to look at developments in this space. The key thing for the growth on Eurex is to continue to build orderbook liquidity to supplement the deep OTC liquidity currency available. We expect more banks stepping into the futures space and always welcome additional liquidity providers.

Are regulations pushing more clients towards FX Futures? 

Alex: We’ve seen more interest in clearing for FX as part of the UMR rules, and FX Futures are a key part of this conversation. More and more people are seeing the benefits of these products from a gross notional perspective, but most conversations are still focused on the mandatory initial margin products, NDFs and FX options. The more products clients tend to clear, then the opportunity for funding and margin efficiency increases.

Christoph: UMR is a regulatory topic we are close to and has made us look in more detail at our overall FX execution strategy. We have found that getting full transparency over the costs we face in the FX business is something we continue to focus on. We also see that the regulatory world is changing all the time and having the certainty of an EU exchange gave us the comfort of certainty moving forward.

Thank you all for the insights into your businesses and we look forward to working together on all Eurex FX products and services.

For more information about connecting to Eurex FX, please contact the Eurex's FX Team. 

About Barclays

Barclays is a British universal bank. We are diversified by business, by different types of customers and clients, and by geography. Our businesses include consumer banking and payments operations around the world, as well as a top-tier, full service, global corporate and investment bank, all of which are supported by our service company which provides technology, operations and functional services across the Group.

Barclays offers investment banking products and services in the US through Barclays Capital Inc. For further information about Barclays, please visit our website www.barclays.com

About DZ PRIVATBANK

DZ PRIVATBANK is a cooperative private bank, specializing in customized solutions for high-net-worth individuals, professional fund initiators as well as private and medium-sized corporate clients. As center of competence for private banking, fund services, and lending in all currencies it is focused on the German-speaking market and the close cooperation with the cooperative financial network. DZ PRIVATBANK operates from ten locations in Germany – Hamburg, Hanover, Oldenburg, Berlin, Leipzig, Düsseldorf, Frankfurt, Stuttgart, Nuremberg, Munich – and has offices at the international financial centres of Luxembourg (headquarter) and Zurich.

About Union Investment

For over 60 years now the Union Investment Group has been a reliable asset management partner to both retail and institutional investors. What distinguishes the company as a portfolio management expert throughout the cooperative financial network is its strong partnership ethos and the exceptional professionalism in everything it does. More than four million investors have placed their trust in its wealth of experience, making Union Investment one of Germany's leading providers, with some €368 billion in assets under management. Offering a total of 1,251 investment funds, the company delivers solutions involving equity funds, fixed-income funds, money market funds, mixed funds, funds of funds, guarantee funds and open-ended real estate funds.