CME Group to consolidate its two NDF liquidity pools on EBS Market by Oct 2024

CME Group has announced a significant development in its foreign exchange (FX) offerings.

Scheduled for October 2024, subject to regulatory approval, CME Group plans to consolidate its two non-deliverable forward (NDF) liquidity pools on the EBS Market platform into a single trading venue. This move is poised to create a unified global trading environment, linking market participants across different regulatory jurisdictions.

The merger of these NDF liquidity pools is expected to enhance market efficiency substantially. It will also reinforce EBS’s position as a premier source of centralized liquidity and price discovery for NDFs. This strategic initiative responds to the growing fragmentation and complexity within the global FX market, addressing the need for a globally accessible primary trading venue for NDFs.

EBS Market offers 1-month Asian NDFs, LatAm NDFs, and African NDFs

Paul Houston, Global Head of FX Products at CME Group, noted that combining the two leading NDF trading platforms would enhance global access for participants, expand liquidity, improve price discovery, and offer operational efficiencies.

“Amid continued fragmentation and rising complexity within the global FX market, the need for a unified, globally accessible primary trading venue in NDFs is greater than ever. Combining our two leading NDF trading platforms will improve access for participants around the world while expanding liquidity, improving price discovery, and providing operational efficiencies for the marketplace.”

EBS Market, a pioneer in electronic NDF trading, introduced trading on a central limit order book for these instruments in 2007. The platform currently allows customers to trade 1-month Asian NDFs, LatAm NDFs, and African NDFs, offering a comprehensive range of options for traders.

CME Group also launching CME FX Spot+

Last week, CME Group today announced plans to introduce ‘CME FX Spot+’, a novel spot foreign exchange (FX) marketplace. This platform, set for client testing in the second half of 2024, is designed to bridge the gap between cash market participants and the company’s existing FX futures liquidity.

For the first time, participants in the spot FX market will gain the ability to tap into CME FX futures liquidity within an over-the-counter (OTC) spot environment. This integration occurs in a central limit order book setting to ensure transparency. On the other hand, users of FX futures markets will benefit from expanded access to OTC FX liquidity.

CME FX Spot+ aims to leverage FX Link, a mechanism that facilitates a tradable spread between OTC spot FX and CME Group’s FX futures. This feature is instrumental in connecting liquidity across both trading environments.

Accessibility is a key aspect of CME FX Spot+, as it will be available through the CME Globex network. This includes existing EBS Market Globex connectivity, ensuring that the global EBS spot FX customer base can seamlessly tap into this new and complementary liquidity pool.

The CME FX futures and options market has shown notable growth, with an average notional daily volume rising to $81.8 billion in 2023, compared to $76 billion in 2021. This increase suggests that more investors are turning to exchange-traded derivatives as an alternative to over-the-counter (OTC) products. This shift is partly to optimize funding and manage the capital impacts of regulations like SA-CCR (Standardized Approach for Counterparty Credit Risk) and UMR (Uncleared Margin Rules).

In August 2023, CME Group announced the consolidation of its various FX-related businesses into a single unit. This unit comprises FX futures, options, cash, and OTC FX businesses and is led by Paul Houston, who has extensive experience overseeing CME Group’s futures and options business for seven years.