Nadex (through its affiliated entity Nadex Clearing) intends to start offering currency futures to retail investors. Nadex Clearing LLC just filed an application with the CFTC requesting to be registered as a Derivatives Clearing Organization (DCO).
Since Nadex is an exchange that among other assets already deals with currency binary options and spread option contracts it only makes sense for it to expand its offering to currency futures. It’s no wonder Nadex is trying to tap this market as currency futures are very popular in the US: CME is by far the largest exchange in the US recording volumes of about $110 billion a day in FX contracts alone. ICE is another exchange offering the US Dollar Index (USDX) and other currencies transacting about $6 billion a day on average. Similar global exchanges are LMAX in the UK offering spot fx and CFDs, GBOT in Mauritius which fails to pick up and DGCX in Dubai which is growing at an outstanding pace.
Nadex recently tried to attract more traders by offering unique binary options called political binaries. CFTC shut down this initiative almost instantly.
More information about Nadex’s filing:
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Nadex Clearing is affiliated with North American Derivatives Exchange, Inc. (“Nadex Exchange”). Nadex Exchange is registered with the Commission as a designated contract market (“DCM”) and as a DCO, and historically has listed for trading and cleared only fully collateralized binary option and spread option contracts. Nadex Exchange will continue to do so but now intends, subject to Commission approval, additionally to list traditional, micro-sized futures contracts that would be cleared by Nadex Clearing.
Nadex Clearing is requesting approval as a DCO at this time in order to begin providing clearing services for margined retail foreign exchange futures contracts that will be traded on Nadex Exchange. These contracts, known as spot-equivalent futures, were previously reviewed by the Commission with respect to the similar offering on the U.S. Futures Exchange, L.L.c. that was cleared by The Clearing Corporation. The spot-equivalent futures contracts that would be cleared through Nadex Clearing are based upon highly liquid foreign currency pairs, including EUR/USD, GBP/USD, AUD/USD, USD/CAD, USD/CHF and USD/JPY. Currency markets have a long demonstrated history of deep liquidity even during times of financial market stress, and there is ample data available to establish sound risk management policies and operating procedures for these products. Nadex Clearing believes that these products satisfy all regulatory criteria for trading and clearing.
Nadex Clearing will develop a robust clearing solution that is suitable for clearing a variety of standard futures products. Nadex Clearing does not intend to clear swaps or other over-the-counter products. Nadex Clearing will focus on clearing cash-settled contracts with notional values and economic characteristics that are targeted at retail customers “micro”-sized contracts). Nadex Clearing does not intend to clear any physically settled contracts. All futures contracts cleared by Nadex Clearing will be margined using traditional futures margining methodologies for calculating and collecting original and variation margin.
Nadex Clearing intends to focus on clearing contracts that are smaller versions of contracts that have previously been reviewed by the Commission and have been offered for trading on a DCM. Over time, Nadex Clearing may expand its operations to products beyond currencies, to include, for example, metals, indexes, interest rates, energy, and agricultural futures contracts. Nadex Clearing will not clear any such contracts without first making the submission required by Part 39 of the Commission’s Regulations.