A Happy New Year to you all!  

It’s been a while since I took out the pen to draft a newsletter and I can only imagine the gaping hole in your life left by my absence from your inbox over the last couple of months (and my picture)…ok, perhaps not. 

So, what have we got to look forward to in 2020? In short, LIBOR replacement. With the python squeeze by the regulators ratcheting up the pressure, I expect to see the market develop significantly this year. The recent speech by the Head of the FCA (soon to be head of the BoE), asking banks why they are going to keep submitting LIBOR rates, is just another example of this trend. While I’m not exactly Nostradamus, I’m going to make a few predictions:  

1.  We’ll see a significant acceleration of LIBOR reform rates in 2020, and by 2021 LIBOR will represent a lower proportion of interest rate risk in swaps than reformed rates do now. 

2.  We’ll see this start in the swaps market in 2020 (among smaller and larger players) and towards the end of the year, an acceleration into the futures market.     

At CurveGlobal Markets we recently published a consultation document (see here) – for anyone trading LIBOR-based products, you really need to read this and we would like to hear from you about it. Bottom line: if you have a view on transition, you should really consider trading the CurveGlobal SONIA/LIBOR spread. This is the place to view the market “on the telly”, as my broker friends would tell me. Not only do we offer an inter commodity spread at 1/10 on the exchange, but post- trade the positions margin together in a portfolio at LCH providing margin offset. The fact that hedge fund clients can now take advantage of the portfolio margining, as a result of banks now offering this service, is a key step in the development of the market. 

Change in capital markets takes longer than people think, and to butcher Bill Gates’s famous quote, in the short run things don’t move as quickly as you’d think, but in the long term they move further than you’d ever thought. CurveGlobal and partners are building an amazing ecosystem together.

There has been a positive response from those who have signed up to our “all you can eat trade” trading fee scheme (with more in the process of signing up). The idea is that you know, upfront, how much it costs you to trade for the year. This is a very different model to most other exchanges; once again, CurveGlobal is making positive change to the market through innovation.

With potential margin savings (now available, subject to certain conditions, from clearing brokers for clients), no data costs and no incremental cost for trading, you can see why folks are tweaking their Smart Order Routers to take advantage of the liquidity on the market. For those not signing up to the pre-paid scheme, we’re still significantly cheaper on an all-in clearing and execution basis. 

Lastly, I wanted to offer my thanks. Thanks for your support, thanks for your help and thanks for your vision. We work tirelessly for you, to deliver a market that works for you.

Best,
Andy

aross@curveglobal.com

Trade Concept

SONIA-based futures and transitioning for LIBOR-based futures

By Ian Murphy

CurveGlobal® Three month SONIA Futures

This was the first three month futures contract launched by an exchange that referenced the reformed SONIA rate of the Bank of England.

At the same time, we made available the Cross Product Inter Commodity Spread (CP-ICS), which linked pricing with our existing Three month Sterling Future based on LIBOR.

CP-ICS is priced – CurveGlobal® Three month SONIA minus Three month Sterling

The CP-ICS is the listed version of the OTC LIBOR/OIS spread.

The CP-ICS benefits from full implied pricing of both in and out orders, which benefits the two individual contract order books and the order book of the ICS.

The CP-ICS generated 31% of our SONIA futures volume in 2019 and highlights the importance of this trading strategy. 

Both individual contracts have notional values at £500,000 per lot, with minimum tick size and value of 0.005 and £6.25 respectively.

Watch this video to see how the CP-ICS works.

CurveGlobal® One month SONIA Futures

The One month SONIA contract launched at a notional of £1,500,000 per lot with minimum tick increments 0.005 and value £6.25. The date cycle is monthly third Wednesday (IMM monthly style) and follows the accrual convention of the three month contract.

The complementary characteristics of the new one month contract allowed a new ICS to be launched which reflected pricing of one month and three month time horizons.

The Yield Curve Inter Commodity Spread (YC-ICS)

YC-ICS is priced – CurveGlobal® One month SONIA minus CurveGlobal® Three month SONIA.

Inter Commodity Spread – Finer Price Tick   

In July 2019, the pricing for both inter commodity spreads was enhanced by reducing the tick size to 0.001 (1/10 tick) and the corresponding minimum value to £1.25 to create the Finer Price Tick.

An order in an ICS, at 1/10 tick, does imply into the order books of the underlying contracts.  

The Finer Price Tick and the improved implied pricing is shown in this video.

LIBOR Transition  

• Global Markets will continue to actively monitor the ongoing rate reform initiatives in the market in continued collaboration with LCH and will seek to ensure an orderly and effective transition away from GBP LIBOR to SONIA should that ultimately be needed
   

• The proposals set out in this consultation are a crucial first step in ensuring that we are fully prepared to meet the needs of our respective Members and the market more widely
  
  • Market notice
  • Consultation document
     

• This consultation closes on 28 February 2020 – please do take the time to share your views with us
   

• The Bank of England, Financial Conduct Authority and the Working Group on Sterling Risk-Free Reference Rates have published a set of documents outlining priorities and milestones for 2020 on LIBOR transition.
  
  • ​​Next steps for LIBOR transition in 2020 

CurveGlobal Benefits   

• Competitive fee structure, no surcharges for block or basis trades and no charge for market data 
   
• Margin Optimisation
  
  • CurveGlobal futures clear at LCH
  • Opportunity for initial margin reductions when futures positions together with OTC positions are cleared within LCH SwapClear 
    ​
• Contracts designed with aligned date cycles
  

  • One month and three month SONIA-based futures contracts allowed creation of yield curve inter commodity spreads

  • Three month based SONIA and LIBOR-based futures contracts enabled creation of cross product inter commodity spread
     

• Our SONIA-based futures and ICS offer market participants enhanced products to assist their LIBOR transformation to SONIA-based rates

CurveGlobal Markets Document Library

Monthly Volumes and Open Interest

Welcome to CurveGlobal!

As we continue to build real momentum, we’re expanding the CurveGlobal product range and our global footprint. To help us achieve this, we’re pleased to welcome two new members to the team:

Robert Grillo – Head of Business Development, Americas
Robert Grillo has joined us as Head of Business Development for the Americas. He will be based in the US and lead our efforts to expand CurveGlobal’s customer base in the region. Rob has 25 years’ rates experience including Bank of America Merrill Lynch, where he was head of FICC e-sales and global head of institutional rate sales, and JPMorgan, where he was head of the FIG rates sales group.

Chantal Bradford – Business Development Manager
Chantal Bradford will join us as a Business Development Manager in London to drive CurveGlobal’s expansion. Chantal, who was most recently at KRM22, has extensive financial markets experience and the ability to develop strong relationships, which will be a huge asset to the business.

Team Picks

Read the team’s top picks for something to do on a lazy Sunday afternoon...

Feeling peckish?
BaoziInn – London Bridge, a casual restaurant located next to Borough Market, is possibly one of the best places for dim sum in London. I’d highly recommend ordering all the varieties on the menu and choosing your favourite to double up on. It’s reasonably priced compared to other dim sum restaurants close to the City but doesn’t offer the best selection for vegetarians, so it might be worth visiting at the end of the Veganuary/January health kick. – Milain 

Must see
At over three hours, Martin Scorsese’s “The Irishman” on Netflix is long by today’s standards but provides a detailed overview of the life of Frank Sheeran, the “Irish Truck Driver” turned Mob hit man who was assigned as Jimmy Hoffa’s right-hand man. A tale of Mob influence and corruption, the film used new animation technology to allow older actors to play roles which see them age over the course of more than 30 years. The verdict? Much better than the original “Hoffa” starring Jack Nicholson. – Rob

Top read
Summarising a lifetime’s work in a 500-page book can’t be easy. It must be even harder if you want to make your scientific research enjoyable for the wider public. In "Thinking, Fast and Slow", Daniel Kahneman has done a great job with a challenging, engaging and enticing book that will definitely change the way you approach decision-making. There is plenty to learn on every page and lots of hints on how to put what you have learnt into practice. Settle down in a comfortable seat, with your favourite drink, and enjoy the book...slowly. – Matteo

Press Articles of Note (includes subscription content)

CURVEGLOBAL TO EXPAND PRODUCTS AND GEOGRAPHIES
MARKETSMEDIA.COM

UK REGULATORS LAUNCH FRESH PUSH TO SWITCH AWAY FROM LIBOR
FT.COM 

'TIME TO ACT IS NOW,' BOE TELLS FIRMS CLINGING TO TAINTED LIBOR'
BLOOMBERG.COM

SWAPS DATA: HAVE SOFR AND SONIA SWAPS AND FUTURES LIVED UP TO EXPECTATIONS?
RISK.NET

JUDGEMENT DAY LOOMS FOR DEALERS IN SWAP SHIFT TO SONIA
RISK.NET

SONIA USERS PUSH FOR OFFICIAL IN-ARREARS RATE
RISK.NET

Come Visit Us 

FIA // BOCA 2020 CONFERENCE
FIA BOCA
10-12 March 2020 // Boca Raton Resort & Club // Boca Raton, FL, USA

To find out more about CurveGlobal or to offer suggestions on improving this newsletter, contact us at +44 20 7797 1055​ or info@curveglobal.com.