In a discussion with a colleague about how much was going on in the world I was reminded of Sir Peter Blake. Sir Peter led Team New Zealand to successive victories in the America’s Cup yacht competition and the key to this success was that he focused the team on one question, which they asked about everything that they did. The question was simply this: “Will it make the boat go faster?”
So why is CurveGlobal going faster?
With record volumes and open interest we’ve clearly got the wind behind us. But what’s driving uptake and volumes? The transition from LIBOR to SONIA futures is definitely a major factor, as is the fact that we have significant liquidity – and more importantly banks and funds trading – in the CurveGlobal product. Of special interest is the inter-commodity spread (ICS), which allows participants to trade the LIBOR and SONIA leg with no legging risk. This is appealing to an increasingly wide group of clients.
LCH, our clearing partner, goes live on 19 November with the latest version of portfolio margining. Already approved, this will allow you to margin LIBOR swaps, OIS/SOFR swaps, LIBOR futures and SONIA futures into one risk pool. Go LCH! Given the growing volume of OIS swaps and developing term structure, the potential ability to margin futures with LIBOR and OIS swaps is clearly of interest. Ian shows some great examples of the numbers in his Trade Concept.
The LCH release also includes long-dated bond futures, and here the eliminated and reduced margin can be very significant, as we also show below.
Much of the world is focused on Brexit. Following the minutiae is enough to have anyone reaching for an aspirin – and no doubt it seems so easy from the sidelines for the folk that are negotiating the terms. My only comment is that it’s often much more difficult and complex than the commentariat would acknowledge. What we can say for certain is that CurveGlobal is and will be a viable and compelling alternative. Our products are traded on a UK-based RIE and cleared at LCH.
If you’re not located in the EU27 you have two options:
Option 1 – continue to trade on shore in EU27, at a local European vertical exchange silo, and risk EU rule changes, Direct Market Access constraints (DMA), uncertainty, and potential transaction taxes.
Option 2 – trade offshore in an open market and clear at a diversified clearing house with significant global memberships.
It’s not surprising that regardless of the potential range of outcomes people are valuing the certainty of option 2 – and taking onboard the benefits of CurveGlobal.
It’s just left for me to say thanks to all those who are trading, offering advice and supporting us. We are getting ever closer to becoming a meaningful competitor, bringing great benefits to the whole market in terms of true competition.