CME Group Attracts Seven Firms to its Clearing Service for OTC FX NDFs

CME is pushing out the service to capitalise on new regulatory reforms, increasing the cost of bilateral trading.

CME Group (NASDAQ: CME), the holding company for CBOT, NYMEX, and COMEX exchanges, has signed seven market participants to its OTC FX Non-Deliverable Forwards (NDFs) clearing service.

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BBVA, Citi, Itau Unibanco, NatWest Markets, Santander, Standard Chartered and XTX Markets have agreed to sign up as clearing brokers to offer the service by the end of Q1 2018.

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The exchange operator is pushing out the clearing service of FX NDF trades in a bid to capitalise on new margin requirements and other regulatory reforms, increasing the cost of bilateral trading.

The CME’s offering, which features 12 OTC FX non-deliverable forwards (NDFs), provides FX market participants with greater efficiency and reduced operational complexity. In addition, users benefit from improved counterparty risk management and increased capital efficiency through services such as multilateral netting, as well as simplified initial margin and variation margin exchange.

NDFs comprise a small portion of the overall FX turnover but the product has experienced impressive growth in recent years as it provides a solution to trade spot FX in many restricted markets which its currencies are not deliverable. NDFs are distinct from other currency products given that they do not have a central exchange or delivery. Rather, the trades are being cash settled based on the difference between the exchange rate at the time of the trade and the exchange rate at maturity.

Commenting on the news, Sean Tully, Senior Managing Director of Financials and OTC Products, said: “CME is committed to delivering unparalleled capital efficiencies and we are excited to have seven market participants working to execute CME-cleared NDFs with their customers. Our NDF clearing solution leverages the same guaranty fund as the entire CME Group-listed futures and options complex, enabling material capital savings for our NDF clearing members and lower fees for customers clearing via an FCM – as well as setting the conditions for the portfolio margining of FX futures versus NDFs.”

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