Eurex will enter the foreign-exchange market for the first time as Europe’s largest derivatives exchange seeks to expand into an asset class dominated by its American rival CME Group Inc.
From Oct. 7, Eurex will offer exchange-listed derivatives on the six currency pairs where the bulk of over-the-counter trading takes place. The futures and options will include contracts based on euro-dollar, euro-pound, euro-Swiss franc and pound-dollar, according to a notice sent to members today. The exchange will also make available contracts based on the pound- Swiss franc and dollar-Swiss franc pairs.
Eurex, which is owned by Deutsche Boerse AG, intends to benefit from increased volumes in currency markets and regulators’ insistence on greater transparency. Volumes in the world’s biggest financial market jumped to a record $5.7 trillion a day in June, according to the latest data from CLS Bank, which operates the world’s largest foreign-exchange settlement system.
CME is setting up a new European exchange, based in London, that will start with 30 currency futures. On Aug. 1, the Chicago-based company said that record foreign-exchange trading contributed to a 27 percent increase in second-quarter profit from the year-earlier period.
The currency market is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges. Traders at some of the world’s biggest banks manipulated benchmark foreign- exchange rates used to set the value of trillions of dollars of investments, Bloomberg News reported on June 12, citing five dealers with knowledge of the practice.
Eurex will offer physical settlement of the derivative contracts through CLS. Investors will be able to trade futures from 8 a.m. Frankfurt time to 10 p.m and options from 8 a.m to 7:30 p.m. The bourse will offer revenue sharing to increase liquidity. It plans to attract market makers, the notice said without giving any details.