Philly enters forex futures arena

The Philadelphia Stock Exchange (PHLX) and the Philadelphia Board of Trade (PBOT) in April launched options and futures on foreign currencies, an asset class that continues to attract more competition among derivatives exchanges. The PBOT launched euro and British pound futures on April 27, complementing the PHLX’s options on the same currencies. PHLX currency options are off to a decent start since their listings in January, with average volume of about 1,000 contracts daily and open interest near 36,000.

Targeted at retail traders, the futures and options contracts are sized the same at 10,000 euros and 10,000 British pounds and are settled in U.S. dollars. Susquehanna and Timber Hill serve as market makers in the contracts. The contracts are not expected to compete directly with currency futures at the Chicago Mercantile Exchange (CME), which are sized at 125,000 units of the underlying currency and are generally traded by institutional players. The CME also offers two E-Mini currency contracts, but even these are still much larger than the PBOT contracts: The CME’s E-Mini euro contract is sized at 62,500 euro and the E-Mini Japanese yen is sized at 6.25 million yen.

“These products are the right size for retail traders — 10,000 currency units for the euro and the pound,” says Dan Carrigan, PHLX vice president of new products. “This has opened up new revenue opportunities because foreign exchange is really the last asset class that is virtually untapped. “If you wanted to trade currency options, you really had to go through the [CME]. Now customers can hold a currency option in the same account they hold their stocks.” The PHLX plans to add options on the Japanese yen, Swiss franc, Canadian dollar, and Australian dollar, pending
Securities and Exchange Commission approval.

The PBOT will offer matching futures contracts. The Philadelphia exchanges are also in competition with the International Securities Exchange (ISE), which launched euro, pound, yen, and Canadian dollar options April 18. Besides the CME’s dominant position on the futures side, the New York Board of Trade has currency futures and options on futures.