Eurex adds emerging markets currencies to FX futures offering

Starting on 10 October, Eurex will begin trading new FX futures contracts covering Brazilian Real (BRL), Mexican Pesos (MXN) and South African Rand (ZAR).

The new contracts cover the three most heavily traded currencies outside the G10. Eurex said the addition would help bolster its position as a FX liquidity hub in Europe.

A total of five new contracts will be listed covering the following emerging markets currency pairs: BRL/USD, MXN/USD, MXN/EUR, ZAR/USD, ZAR/EUR, alongside a liquidity scheme developed to ensure tight pricing and competitive liquidity.

“We see more and more firms coming into the scope of the Uncleared Margin Rules who are looking for solutions to reduce their average aggregate notional amount and bilateral margin requirements.”

The new contracts will be cash settled in US dollars or Euros upon expiry, allowing clearing members to use their existing infrastructure and removing the need to open new cash accounts in these emerging markets currencies.

Eurex FX Futures are similar to over-the-counter (OTC) FX Forwards but are described by Eurex as having significantly lower counterparty credit risk (CCR) because financial obligations are guaranteed by Eurex Clearing as the central counterparty (CCP).

Considering the bilateral margin requirements in OTC trading under the Uncleared Margin Rules (UMR) or the revised capital requirements under standardised approach – counterparty credit risk (SA-CCR), centrally cleared FX Futures also provide additional benefits to customers compared to OTC FX Forwards in terms of margin, funding and operations.

“We see more and more firms coming into the scope of the Uncleared Margin Rules who are looking for solutions to reduce their average aggregate notional amount and bilateral margin requirements,” said Jens Quiram, global co-head FIC derivatives and repo sales at Eurex.

“Listed FX Futures can address these challenges while reducing the overall risk of a portfolio due to Eurex Clearing’s multilateral netting capabilities.”

Earlier this year, Morgan Stanley entered the listed FX business through Eurex. The move followed the growing trend to combine on- and off-exchange business, which has seen a list of market participants at Eurex moving their business to the exchange or combining over the counter (OTC) and exchange-listed FX trading through the use of Exchange-for-Physical (EFP) services.