CME Group launches new products and tools

Darren Sinden

Retail traders make up 24% of the total user base of the CMEs rather sophisticated FX analysis tools and are the largest user group


Chicago based CME Group, one of the world’s largest exchange operating companies has added to its range of tools and products.

In terms of products, the CME has announced that it intends to launch a global emissions offset contract (GEO) from early March subject to regulatory approval.

The new contract will help corporates and others to mitigate their carbon footprints as well as allowing energy traders and other speculators to take a view on emissions and the cost of carbon capture and offset.

The rival ICE exchange already offers futures contracts on European Union carbon emissions and the so-called EUA contracts are becoming increasingly popular.

Following on from Brexit ICE is also working on the launch of a UK centric carbon emissions trading scheme.

The GEO contracts at the CME will be based on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and will be listed on the CMEs NYMEX exchange.

Which is synonymous with the trading of energy and energy-related products. CORSIA adheres to a series of globally accepted carbon offset standards that were developed by a specialist United Nations agency.

The CME has also recently added to its range of FX products with the introduction of the vol converter tool which takes prices from thousands of FX options listed at the CME and converts those into what it calls a short format OTC volatility surface.

FX traders can display the data in a number of formats and drill down into that volatility surface and supporting data to find potential listed options to act as hedges for their OTC exposure.

The CME expects the use of listed FX options, among OTC FX traders, to grow as changes to uncleared derivatives margining rules begin to take effect over the course of 2021 and 2022.

Exchange-traded options can appear to lack flexibility when compared to their OTC peers.

However, they have a number of advantages when it comes to counterparty risk and capital commitments because they are cleared and guaranteed by the exchanges central counterparty or CCP.

In the CME’s latest quarterly FX report the exchange provides an insight into exactly who is using their suite of FX tools. Which also includes FX market profile, software that allows a comparison between EBS spot prices and IMM FX futures, and the FX swap rate monitor which is the only publicly available tool for FX swaps reference pricing.

These are quite sophisticated tools so its perhaps surprising to find that the largest cohort of users is retail traders who make up 24% of the total user base. The second-largest user group are banks who make up 15% whilst asset managers come in at 14%.

Hedge funds and prop traders account for 11% and 9% of the user base respectively. Independent traders who would have once been labelled as locals account for another 6% of users.

The large number of retail traders taking advantage of the CME FX data and comparison tools is a further sign of the increasing sophistication of private investors.

At the other end of the spectrum, the CME report highlights the take-up of its CME FX Link tool, the only central limit order book for FX swaps.

It now has 10 futures commission merchants (FCMs) and eight prime brokers using the product. Which the CME has now linked to two specialist trade reporting and messaging venues in the shape of IHS Markit and Refinitiv’s trade notification network, that can now be used in preference to the CME’s in house systems.

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