ICE a leading futures and derivatives exchange has planned to clear non deliverable FX products on the back of growing demand by market participants.The executing venue will initially clear more liquid NDF’s including Chinese Yuan, Brazilian Real, Russian Ruble, Indonesian Rupiah, Korean Won, Indian Rupee and Chilean Peso.
FX clearing has become a hot topic post Dodd Frank reforms. NDF’s were highlighted as contracts that should be centrally cleared. CME the worlds largest exchange currently offers a wide selection of FX futures, options and NDF all centrally cleared.
ICE collaborated with a selection of the worlds leading FX banks to develop its FX clearing service, partners include Citi, BofA Merrill Lynch, J.P. Morgan, Credit Suisse, Deutsche Bank and Morgan Stanley.
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With BRIC nations commanding economic growth and money flows FX instruments to manage currency risk have been paramount. BRIC nations currently have capital restrictions and hence their currencies are not freely available and tradeable. The NDF market is believed to account for around 3% of daily FX turnover.
The product is traditionally used by corporates and financial institutions to hedge however estimates suggest that around 60% is based on speculation.
Out of the four giant economies India, Brazil and Russia have interim solutions onshore either in the form of futures or options. India introduced currency futures in 2008 and has seen strong take up amongst the trading community. Volumes are arouse $10 billion collectively on all three exchanges.
FX is continuing to creep up on tradition capital markets exchanges, ICE has shown hat it is keeping up to consumer demand by using innovation in its products.
Forex Magnates team wrote a detailed report on trading volumes in the institutional market, data includes CME’s volumes, available in the latest quarterly report.