NDF and Currency Options Activity Rises in January on US-Based SEFs

The newly appointed executing venues, Swap Execution Facilities (SEFs) continue to gain traction among trading participants. SEF registered members reported volumes for the month of January, under the FIA SEF Tracker. Volumes increased across both FX products with the total value of trades topping $743 billion during the month.

The CFTC authorized exchange saw volumes increase 4.35% on a MoM basis, in December, members reported a total of $711 billion, with $402 billion in NDF contracts and $309 in FX Options contracts. In January, NDF instruments totalled, $424 billion and Currency Options $318, both rising from figures reported in December.

Inter-Dealer Brokers Dominate

The bulk of the orders are executed on four venues, the world's largest inter-dealer brokers such as ICAP and BGC are in top spot. In January, ICAP was the most liquid FX NDFs venue reporting a total of $124 billion in notional volumes. In the Currency Options market BGC led the way with a total of $104 billion. Tullett Prebon and GFI were the next most active in the NDF segment.

The post BGC-GFI merger will challenge ICAP’s position as the two venues’ combined total will surpass the listed broker's exposure.

The Brazilian real was the most active NDF contract with the lion’s share of activity, the BRL contract had 43% market share, followed by Asia’s second most populous country's currency the Indian rupee, which recorded 9.5% in trading flows. South American cross, the Chilean peso and Asia's Chinese yuan were the next most liquid at 3rd and 4th place, respectively.

NDFs are defined as synthetic FX forward contracts on non-convertible currencies or are traded on currencies with low Liquidity in the marketplace, the crosses are predominantly from emerging market nations which are undergoing economic reform and liberalization.

The NDF contract is used mainly used by hedgers to manage currency exposure, however in 2013, the Indian rupee INR NDF contract saw speculators bullying the market in an attempt to destabilize the volatile INR contract which weakened 20% against the dollar.

SEFs were established in 2013 amid new rules deployed in the Dodd-Frank Act. The SEF provides pre-trade information and centrally clears the OTC contracts, the bulk of volumes are on interest rate swaps, followed by credit and FX contracts.

Last month, BGC reported that it had enhanced its product offering on its e-Trading Platform , the global produced added the INR NDF contract.