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PUBLISHED Q3 2020 The FX Report Solving market challenges FX Futures FX Options FX Link EBS Subscribe to all our product news at cmegroup.com/thefxreport Join the conversation at linkedin.com/company/foreign-exchange
1 IN THE MARKETS
IN THIS A quarter of parts – pandemic, participants, progress,
REPORT: and solving market challenges
In the Markets
A quarter of parts – pandemic,
By Paul Houston, Managing Director, FX Products
participants, progress, and
solving market challenges
This quarter saw much lower volumes across the FX The second is the CME OTC Vol Converter Tool, scheduled
In the news
A view on G5 – volatility, event market, relative to the excitement of the first quarter. for launch in September and currently in pilot with a
risk, opportunity
The impact of zero interest rates, working from home, number of customers. This tool displays CME listed FX
In our markets and the market-wide deleveraging combined to dampen options in an OTC equivalent volatility surface across
Fulfilling demand for transparency
activity. Despite this, the FX team at CME have been the G5 currencies. It offers numerous rich functionalities,
in swaps, options, (and quotes)
with new analytical tools active across a number of initiatives, aiming to ensure including tradeable bid/offer spreads with drilldown to the
our products continue to be as accessible, efficient, and underlying CME contracts.
In our markets
Focused on reducing costs cost-effective as possible.
through product enhancements A huge amount of resources and effort has gone into
and programs
In particular, in this edition we have highlighted new creating these tools, and we hope you will find value in
Need to know analytical tools, which are aimed at bringing both learning more about them in our report. This edition also
Futures and options: From G10
to EM
greater transparency to the marketplace ‒ as well as features the upcoming plans for EBS. EBS Market has
providing richer information to participants to aid their a prominent role in the spot FX market, and the Q&A
Need to know
Spot, forwards and NDFs: The
decision-making. interview with Jeff Ward outlines the details and decisions
future has begun for EBS behind these changes. I would like to wish everyone the
The first of these is the CME Swap Rate Monitor, launched
very best, and thank you for the continued support of
How to... this quarter and available for free on cmegroup.com.
CME FX products.
This tool shows: (a) current and historical access to FX
Link pricing, which is potentially
an important transparent data
NEW: VOL CONVERTER TOOL
Launching Sept 2020
source for customers given the
OTC FX swap market has no More than a product:
Options 4% Currency Swaps 2%
A source of reliability in market stress
central primary pricing CLOB and
Listed FX Options
Now, whichever Available in 24 currency
H1 2020: Averaged
pairs, with weekly and Spot 30%
instrument you monthly expiries on Mondays,
trade, you can do so
Wednesdays and Fridays. EBS Spot
(b) combines FX futures and FX
Available to trade in over
60 currencies pairs across
Link pricing to calculate implied $83.2bn notional traded in Futures and Options
EBS Market and EBS Direct
with the certainty of
NDFS 4%
and a primary market for
Global FX Market EUR, JPY, and CNH
EBS NDFs BIS 2019 Survey
CME Group.
interest rate differentials across
Available in Asian, South
American and now African
Listed FX Futures
$80.0bn traded in Spot on EBS
currencies vs USD covering Available in more than 40
1M, EOM and monthly rolls currency pairs and used
CME cash and listed FX
currency pairs ‒ highlighting
as a proxy for OTC spot
& forward outrights.
products offer absolute Calendar spreads also act
$232bn in Open Interest in Futures and Options
as a proxy for OTC FX swaps.
and additional liquidity to
bilaterally traded FX swaps,
Swaps 49%
CME FX Link
areas where investment and
Outright Forward 11%
options, spot, forwards
trading opportunities could be
Available in 8 currency pairs.
Provides a cleared, standardized EBS Forwards
and NDFs. and credit efficient alternative
to FX swaps.
Available in more than
120 currency pairs as both
executed using FX Link as a
outright Forwards and Swaps
NEW: FX SWAP RATE MONITOR
Live June 2020 trading mechanism.
Data: Percentages according to 2019 BIS Triennial Survey, based on foreign exchange turnover
Expirations or availability of currencies may only be available on certain currencies or platforms
2 IN THE NEWS
IN THIS A view on G5 – volatility, event risk, opportunity STAY UP-TO-
REPORT: By Erik Norland, Senior Economist DATE WITH
In the Markets FAST-MOVING
A quarter of parts – pandemic,
participants, progress, and In Q2 2020 the biggest currency pairs traded quietly, with 1 Divergent pandemic outcomes: The coronavirus MARKETS.
solving market challenges
little movement in either EUR/USD, which rose 1.8% versus pandemic appears to have receded in some countries,
In the news the US dollar, or USD/JPY, which was nearly unchanged. while new cases continue to rise in other countries. SUBSCRIBE
A view on G5 – volatility, event
risk, opportunity
Brexit negotiations weighted on GBP, which fell by 1% How might it impact the currency markets if some
versus USD and by 3% versus EUR, a small move by countries move towards a second lockdown while
In our markets
Fulfilling demand for transparency
historical standards. As the coronavirus receded in China, others do not?
in swaps, options, (and quotes) offshore renminbi strengthened by 1.5% versus USD.
with new analytical tools 2 The possibility of divergent monetary and fiscal policies:
The real action was further afield. As China and other Among the major currency pairs, fiscal and monetary
In our markets
Focused on reducing costs nations reopened their domestic economies, commodity policies were remarkably similar in Q2. Most central
through product enhancements
and programs prices recovered from their lows, pulling CAD 4% higher banks cut rates towards zero, if they weren’t there
versus USD while AUD rallied 12% over the course of the already, and expanded their balance sheets. Fiscal
Need to know
Futures and options: From G10 second quarter. policy also saw increases in public spending and
to EM
deficits to offset the impact of social distancing.
While currency movements were generally quite small
Need to know Going forward, fiscal and monetary policies may
during the second quarter, options traders appear
Spot, forwards and NDFs: The
begin to diverge as different currency areas curtail the
future has begun for EBS concerned about the prospect for future volatility. Implied
exceptional measures more quickly than others. This
volatility on many of the currency options was about one-
How to...
may be particularly acute if some countries opt for
third higher at the end of June 2020 than it had been pre-
renewed lockdowns while others do not.
pandemic. There are a variety of factors that may be of
concern to currency market participants including:
Read, watch, and listen to more insights from Erik
Norland and Blu Putnam, our Chief Economist 
3 IN OUR MARKETS
IN THIS Fulfilling demand for transparency in swaps, options, (and quotes) USE THE FX
REPORT: with new analytical tools SWAP RATE
In the Markets MONITOR,
A quarter of parts – pandemic,
participants, progress, and Swaps: Get to know the FX Swap Rate Monitor Options: Introducing the Vol Converter – TRACK IMPLIED
INTEREST RATE
solving market challenges
– live since June 2020 launching Sept 2020
In the news
A view on G5 – volatility, event The OTC FX swap market, according to the latest BIS For the first time, traders will be able to compare listed DIFFERENTIALS
risk, opportunity
survey, trades $3.2 trillion daily. Despite this volume, there FX options and OTC FX options in one screen – bringing ACROSS EIGHT
In our markets
Fulfilling demand for transparency
is no primary market that offers a firm, central OTC pricing a unique level of price transparency and comparability. CURRENCY
source. FX Link addresses this by providing a firm CLOB
in swaps, options, (and quotes)
with new analytical tools
tradeable spot starting IMM swap across eight currency
This new tool will calculate and convert listed CME FX PAIRS
option premiums, fixed strike data, rules, and formats
In our markets pairs, traded and cleared on CME’s markets. With the
Focused on reducing costs
– into an OTC-equivalent volatility surface, in OTC
recent launch of CME FX Swap Rate Monitor, which
through product enhancements standard tenors, deltas, and quote conventions –
and programs displays FX Link pricing in a current and historical view,
creating comparable pricing across major options pairs.
Need to know
participants have access to a public reference FX swap
Futures and options: From G10 rate ‒ for the first time ever, at no charge. This new tool
to EM
also combines FX Link pricing with FX futures pricing to
Vol Converter Tool
Need to know calculate implied interest rate differentials across the eight
Spot, forwards and NDFs: The LIVE – September 2020
future has begun for EBS currency pairs ‒ available in a current and historical view
EVALUATE – OTC-equivalent pricing across eight tenors and a full delta surface
and highlighting potential investment opportunities. DISCOVER – The underlying CME contracts driving each value
How to...
FX SWAP RATE VOL CONVERTER
ACT – On the optimal trade, with the ability to analyze price divergences in all
MONITOR TOOL Since the product launch, many participants have signed deltas and all maturities
TOOL
up to use the tool, available now on cmegroup.com.
Get to know the tool, the calculation, and read about
different ways it can be applied.
Bringing transparency to Request for Quote
See how our new Directed Request For Quote (DRFQ)
FX Swap Rate Monitor Tool
functionality enables you to get more quotes easily,
LIVE – June 1, 2020
from more of your chosen liquidity providers
PROGRESS – Over 700 views
FOLLOW – Market information on FX swap pricing and daily changes, delayed
only by 10 minutes
VIEW – Implied interest rate differentials for eight currency pairs as they develop
IDENTIFY – Potential areas of opportunity using FX Link
Sign up and see 
4 IN OUR MARKETS
IN THIS Focused on reducing costs through product enhancements SIGN UP
REPORT: and programs FOR FX LINK
In the Markets VOLUME
A quarter of parts – pandemic,
participants, progress, and Enhancing FX Link: New functionality, Expanding options: Solving for the short end ALERTS,
DELIVERED TO
solving market challenges
built for better spread trading
In February, we expanded our short-term options
In the news
A view on G5 – volatility, event Historically in order to transact on FX Link, a customer to include Monday expiries. We now offer Monday, YOUR MAILBOX
risk, opportunity
must trade directly into the Globex central limit order Wednesday, and Friday expiries. As the consequences of WEEKLY
In our markets book (CLOB). C-Cross and RFQ functionality provides Covid-19 have been felt across the globe, the market has
Fulfilling demand for transparency
in swaps, options, (and quotes) participants and liquidity providers with an alternative form increasingly turned to these contracts in order to manage
with new analytical tools
of execution, enabling larger order sizes to be negotiated and express risk.
In our markets pre-execution and subsequently submitted through Globex.
Focused on reducing costs
This method of execution is closer in nature to the existing
through product enhancements NEW: Everything you need to trade FX options
and programs OTC FX swap market, enables brokers to be used, and
offers participants the ability to execute larger trade sizes
Need to know Notably, average daily volume in Mondays expiries
Futures and options: From G10 by accessing additional liquidity that isn’t immediately
to EM increased by 107% in June compared to May.
present in the order book.
Need to know
Spot, forwards and NDFs: The
NEW: Resources created specifically for intermediaries
future has begun for EBS
Read the SER: Live July 27, 2020
How to... An SER is a Special Executive Report – released by
CME Group whenever there is a rule change to our As demand has grown, so has the range of solutions we
products or markets. offer – from more strikes, to more maturities, and aligning
our expiries to the 10 a.m. NY cut. Now, we’re making our
markets more accessible to our network of intermediaries
WHAT: Agree in advance size, price, and direction ‒ prior to
to help more participants use our centrally-cleared, capital
entering an order in Globex
efficient model – and more compelling to participants
HOW: BPVM (Better Price or Volume Match) percentages who need to express large risk transfer, contributing to all
on all outright FX futures equal to 50%, in line with the participants’ TCA.
current levels for all FX options
WHY: Standardizes CME’s Globex crossing mechanism Manage risk with the new large trade fee reduction for
across the entire listed FX complex, enabling FX Link to be FX options traders with large risk transfer needs. However you
execute – the cost has been reduced by half for 12 months to
used as an even better proxy for bilateral FX swaps.
help traders around the world manage risk.
Find out more about this functionality, how it works, Find out how to participate
and how to take advantage of it 
5
Analyzing the June roll: Assessing improved Reducing the cost to trade: Reducing Minimum
IN THIS price discovery Price Increments WATCH THE
REPORT: Cost of execution improvement: EUR, JPY, CAD, and AUD The backdrop of Covid-19, a move to SA-CCR for the ROLL AS IT
In the Markets
were all quoted at .2 throughout the two-week roll period. calculation of counterparty credit risk exposures, and DEVELOPS,
EUR was at the MPI, approximately 99% of RTH, with the Uncleared Margin Rules continue to bring attention
A quarter of parts – pandemic,
participants, progress, and
JPY at the MPI, 90% of RTH. Both CAD and AUD were to the potential costs and benefits of clearing for both
USE OUR PACE
OF THE ROLL
solving market challenges
quoted at the .2 MPI, approximately 99% and 95% of RTH FX FWDs and FX swaps. In response to client feedback,
In the news
A view on G5 – volatility, event respectively. GBP was at .5, 96% of RTH. we have been reducing the minimum price increment for TOOL, TO HELP
risk, opportunity
the quarterly roll in the G5 pairs by 50-60% in order to YOU ANALYZE
materially reduce the cost to trade, making the use of FX
In our markets
Fulfilling demand for transparency
Read more
futures more cost effective than ever before.
YOUR ROLL
About how we have improved TCA, and how to
in swaps, options, (and quotes)
with new analytical tools consider the quantitative and qualitative factors
STRATEGY
In our markets
that affect it Lower Cost of Execution with CME FX Calendar Spreads
Focused on reducing costs CAD AUD GBP JPY EUR
through product enhancements $7.00
$6.25 $6.25 $6.25
and programs
Efficiency of the roll: CME’s Pace of the Roll tool indicates $6.00
$5.00 $5.00
Need to know that the transference of open interest was above the $5.00
50%
Savings
60%
Savings
60%
Savings
Futures and options: From G10 60% 60%
historical average across nearly all of the G5 currencies,
Tick Value
$4.00 Savings Savings
to EM $3.125
with EUR (85%) at 8% above the historical average, JPY $3.00
$2.00 $2.00
$2.50 $2.50
Need to know $2.00
Spot, forwards and NDFs: The
at 78% (+7% vs. avg.), GBP at 77% (+5% vs. avg.), CAD at
$1.00
future has begun for EBS 78% (+10% vs. avg.), and AUD at 63% (-6% vs. avg.).
$-
How to... Savings assumes aggressing execution
Initial MPI Reduced MPI at minimum price increment
June Pace of the Roll: G5 Pairs
The use of FX futures as a cleared derivative enables
OI Rolled – OI Rolled – Change vs. CVA charges to be removed as well as the netting of
Pair Q2 2020 Prior 4 Average
exposures and cash flows against CME ‒ optimizing
EUR 85% 77% +8%
capital costs as well as operational workflows. In addition,
JPY 78% 71% +7% the residual exposure attracts a much lower counterparty
GBP 77% 72% +5% risk weighting for risk weighted asset calculations, a cost
that can be relevant on a direct or indirect basis for some
AUD 63% 69% -6%
OTC FX transactions.
CAD 78% 68% +10%
6 N E E D TO K N O W
IN THIS Futures and options: From G10 to EM FOLLOW
REPORT: Key Stats THE VOLUME
In the Markets WHENEVER
A quarter of parts – pandemic,
participants, progress, and As the world reflects on the events of Q2 and the memorable activity across financial instruments and commodities, YOU WANT
TO, ADD THE
solving market challenges
volume in our markets followed global trends as participants looked to express risk. Often turning to our markets to gain the
price certainty and transparency they sought, and to find the liquidity they needed.
In the news
A view on G5 – volatility, event CONTRACTS
risk, opportunity
YOU WANT TO
In our markets
Fulfilling demand for transparency
WATCH TO MY
in swaps, options, (and quotes)
with new analytical tools EUR/USD A S S E T M A N AG E R S AU D/ U S D PORTFOLIO
In our markets
Focused on reducing costs Traded $31.1B in notional Held 48% of all Traded $7.19B in notional
through product enhancements
and programs in H1, equivalent to open interest in in H1, equivalent to 107,849
Need to know $219K+ contracts. EUR/USD. contracts. YTD open interest
Futures and options: From G10
to EM
averaged 149,198 contracts.
Open interest was up Use this tool to explore
Need to know
Spot, forwards and NDFs: The 12% YTD, at 587,813. Open Interest, using CFTC data See the contract
future has begun for EBS
How to... See the contract
B U I LT F O R E V E N T R I S K OPEN INTEREST E M PA I R S
Volume in Monday $9B across all Volume grew to 83K
FX Options Expirations Weekly options expiries: contracts YTD ‒ driven by
increased by 107% in Monday, Wednesday, BRL up 54%, ZAR up 80%,
June over May. and Friday and RUB up 41%.
Get the codes and Use this heatmap tool to explore Follow the volume in our EM pairs
get to know the expiries open interest 
7 N E E D TO K N O W
IN THIS Spot, forwards and NDFs: The future has begun for EBS Are you an existing
REPORT: A discussion with Jeff Ward, Managing Director, EBS, on future plans and the benefit and value it will bring to the market. client of EBS?
In the Markets
A quarter of parts – pandemic,
participants, progress, and The integration of EBS Market onto Q3 Credit challenges remain top of mind for Q5 As markets change, are you seeing
WATCH OUR
solving market challenges
CME Globex is the first step in bringing many participants, can EBS help solve for this? demand for your products from new and WEBINAR TO
different clients?
In the news to market a cohesive offering across A: We’re bringing to market an enhanced SEE ALL THE
A view on G5 – volatility, event credit model, which will enable more A: EBS is synonymous with OTC FX. Our
risk, opportunity
listed futures, options, and cash FX.
efficient credit management, by enabling history established us at the heart of FX DESIGNS,
In our markets
Q1 What are your plans for EBS Market,
customers to share credit across our market structure, and for many interdealers, BENEFITS AND
platforms, leverage Net Open Position Credit execution – from the key pad to the screen.
DETAILS
Fulfilling demand for transparency
in swaps, options, (and quotes) as a primary and central source of liquidity if desired, and to consolidate regional credit We’re seeing the asset management
with new analytical tools
for so many OTC FX products, currencies, to a single global limit. community increasingly make that same ask
and customers?
In our markets of us – with growing adoption of our EBS support.ebs.com
Focused on reducing costs Institutional platform. Uniquely, this platform
through product enhancements
A: EBS Market, our CLOB, will be integrated
and programs with CME Globex, with a distributed EBS remains on course to integrate is designed for portfolio managers. Their
matching model in London and New York. EBS Market with CME Globex by the needs have shaped every aspect of the build
Need to know
Each engine will be a single source of global end of 2021 – from trade, to best ex, with built in pre-trade
Futures and options: From G10
liquidity – in EM and G10 respectively. This Execution Cost Analysis and post-trade TCA.
to EM Find out more about EBS
new design enables us to fulfil one clear ask It’s interesting to see that 48% of OI in CME’s
Need to know from the marketplace – to simplify. We’ll do EUR/USD futures is held by this segment,
Spot, forwards and NDFs: The
this by concentrating liquidity, decreasing the as this community increasingly turns to our
future has begun for EBS Q4 What sets EBS apart from other
technology investment required to access it, complementary cash and listed solutions.
OTC platforms?
How to... and by reducing operational risk as books
A: We want to do more than provide
get passed from desk to desk. Q6 Finally, how would you summarize
best-in-class liquidity, we want to benefit
what the future of EBS will bring to market
participants through the development of
Q2 And, as bilateral relationship trading participants?
additional tools in which they can analyze
evolves, will EBS Direct? their own trading, fill ratios, liquidity providers A: Our goal is to be as relevant for our clients
A: EBS Direct creates optionality for our ‒ to better inform decision making. Quant in another 25 years as we are today by
clients. On this platform, we are retaining Analytics does this, exceptionally. Again, creating a platform for liquidity, analytics,
the existing order routing model, whilst re- we’ve looked at the technology, and we’re and efficient risk management. Built to
platforming and upgrading the underlying making it even better. We’re now thinking benefit all participants – from front to back
technology and architecture to increase speed about integrating the EBS platforms with the office, from global banks to regional asset
and flexibility – so we can keep meeting existing CME offerings for FX futures, options, managers – by re-platforming, re-designing,
demand for this type of bilateral liquidity. and listed and cash interest rates ‒ creating and recognizing what the market needs.
complementary value with the tools already
in place.
Read more about the market view:
Read Jeff Ward’s interview with Colin
Lambert, Managing Editor of Profit&Loss 
8
How to...
IN THIS
REPORT: Learn about how listed FX markets operate - watch our modules
In the Markets
A quarter of parts – pandemic,
Find out more about blocks – with this complete guide
participants, progress, and
solving market challenges Access our G7 futures markets as an asset manager – and why others are
In the news Use our options market as an intermediary – and why you should
A view on G5 – volatility, event
risk, opportunity
Stay connected to everything occurring in our markets – subscribe to The FX Report
In our markets
Fulfilling demand for transparency Speak to a member of our team – contact fxteam@cmegroup.com
in swaps, options, (and quotes)
with new analytical tools
In our markets
Focused on reducing costs
through product enhancements
and programs
Need to know
Futures and options: From G10
to EM
Need to know
Spot, forwards and NDFs: The
future has begun for EBS
How to...
cmegroup.com
Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract
Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a
contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that
they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade.
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The information within this communication has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for any errors or omissions. Additionally,
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