JANUARY 2020 - CURVEGLOBAL NEWSLETTER
CURVE POINTS | JANUARY 2020
![]() A Happy New Year to you all! 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. 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, ![]() Trade ConceptSONIA-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
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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 Chantal Bradford – Business Development Manager Team PicksRead the team’s top picks for something to do on a lazy Sunday afternoon... Feeling peckish? Must see Press Articles of Note (includes subscription content)CURVEGLOBAL TO EXPAND PRODUCTS AND GEOGRAPHIES UK REGULATORS LAUNCH FRESH PUSH TO SWITCH AWAY FROM LIBOR 'TIME TO ACT IS NOW,' BOE TELLS FIRMS CLINGING TO TAINTED LIBOR' SWAPS DATA: HAVE SOFR AND SONIA SWAPS AND FUTURES LIVED UP TO EXPECTATIONS? JUDGEMENT DAY LOOMS FOR DEALERS IN SWAP SHIFT TO SONIA SONIA USERS PUSH FOR OFFICIAL IN-ARREARS RATE Come Visit UsFIA // BOCA 2020 CONFERENCE 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. |