Eurex begins trading currency futures

Eurex, the world’s top derivatives exchange by volume, had virtually no success the first time it tried to compete against an established U.S. futures market. However, that’s not stopping the Frankfurt, Germanybased exchange from trying again.

In mid-June, Eurex announced it would begin trading currency futures, competing with not only the Chicago Mercantile Exchange, which has the lion’s share of exchange-traded currency futures volume, but also the enormous interbank market.

“Our core strengths lie in the equity, fixed income, and index markets,” says Rudolf Ferscha, CEO of Eurex. “The foreign exchange market is adjacent to those markets and very often linked directly to trade on those markets.

“The system we have — the infrastructure, the trading engine — is very suitable to high-volume financial products, so we will have very low marginal costs added to what we run currently. We don’t need to reinvent the wheel.”

The futures will trade on Eurex U.S. because the American exchange can trade 23 hours a day, something the European platform is not capable of. “Forex fills the gaping hole in the financial asset category Eurex is trading,” Ferscha says. “We are trading them on Eurex U.S. because they can trade 23 hours a day and also because the main users of futures in the FX space are American, and there is a very established behavior in the states that uses FX futures rather than using the interbank or other venues to express views on what is going on in the forex market.”

Eurex will begin with 10 currency pairs: The Euro, British pound, Japanese yen, Swiss franc, Canadian dollar, and Australian dollar, vs. the U.S. dollar, and the Euro vs. yen, Euro vs. pound, Euro vs. franc, and pound vs. yen.

“We wanted to start with the core products,” says Satish Nandapurkar, CEO of Eurex U.S. “These are the ones where we could really bring the market making together with the end users immediately from the U.S. and Europe.

But these are by no means the only FX products we will ever have. “This is a complete commitment into the FX space, and as such we will enter into the market and we will expand the market as we see customer demand.

Going into some of these emerging markets currencies as we get established is a good way to go.”