Good morning all,

It’s my pleasure to pen another Christmas newsletter introduction, so whether you’ve been naughty or nice, I’m glad you’re still on our mailing list! My personal Santa’s list includes more partners joining, to trade and clear – but you’ll have to wait for January to see if the man in the white beard has delivered.

We’ve a lot to be thankful for at CurveGlobal – such as winning the FOW 2017 Award for Best New Exchange with our partner LSEDM.   

I’m also grateful for your ongoing support, without which we couldn't increase competition, reduce margin, lower costs, and innovate with new products. Our story is resonating with a growing number of participants, and looks set to continue through the next year.
 
But it’s not all about us. In 2018, the team is going to undertake a series of challenges for deserving causes (see below). To kick things off, Emily has decided you get to vote on who goes first, and if I get picked it could mean a few painful activities for me too.  
 
Back to business. Our partners at LSEDM successfully implemented a technical release a couple of weeks ago to ensure CurveGlobal products will be compliant with MiFID II. That said, I think we can all learn from the scale of the changes the whole industry is undertaking. The key lesson for me was much less around core trading platforms, interactions and testing, and more about the need for full lifecycle testing around the edges in risk processing or reporting (drop trade reports, for example).

Moving ahead, portfolio margining of bond futures with interest rates swaps at LCH has been approved by the regulators so as soon as the MiFID II changes have been implemented and bedded down, our clearing partners will be implementing this offset in production. Look for us spending some more time on “package transactions” in 2018, where the potential savings on real portfolios that clients could generate are astonishing, from 2% to potentially as much as 73% margin reduction, with bond and short term interest rate futures included alongside swaps.  
 
This month’s main article provides a year-end review and quick preview of what’s in store for 2018. Our team spotlight has a festive feel to it as well, thanks to Ralph’s team drawing. Make sure you scroll down and check out the likeness! 
 
Wishing you all a Merry Christmas, and a fantastic new year!

Sincerely,
Andy Ross
aross@curveglobalmarkets.com

2017 Year in Review
Looking Back, Looking Forward

By: Emily Grimshaw

What a year it’s been for CurveGlobal. As a new interest rate derivatives venture, listing our products on LSEDM, we made sure we spent a lot of time on the road at conferences and events, building relationships with participants and stakeholders. Our aim: to build strong, consistent liquidity, whilst creating a brand; becoming thought leaders; and delivering more efficiencies for our customers. A tall order? We agree.

The year got off to a strong start as some market participants started to deploy smart order routers. Whilst every new participant that begins trading CurveGlobal products on LSEDM helps to create better liquidity and even better pricing on its own, the addition of a smart order router can be a game changer.

April saw the successful porting of the remaining NLX positions into CurveGlobal products. This increased open interest by 30,000 lots, taking it to over 100,000 lots for the first time. The ported NLX positions and the addition of a new GCM and non-shareholder market participant using smart order technology contributed to building our volume and open interest. As you can see from the chart below, July saw us break another record, trading through 200,000 lots in volume. August was understandably quieter, but by September volumes began to soar again as we hit our highest monthly traded volume to date. 

The end of November into early December has been equally promising, with eleven consecutive days of record open interest and crossing through the 150,000 lots barrier for the first time. To round off a busy and successful year, CurveGlobal in partnership with LSEDM, won the FOW 2017 Award for Best New Exchange.

With this kind of support, we’re excited about the prospects for next year. So what can we look forward to in 2018?

Smart Order Routers (SOR)
As the MiFID II deadline fast approaches, the best execution dilemma still hangs in the balance. Smart Order Routers are considered an intelligent execution tool. So -- are you ready? And do you have a SOR?

The SOR was first developed in the 1980s, but only started to infiltrate the European markets as a reaction to the best execution rule in MIFID I, which quickly fragmented liquidity. The solution to this problem became the deployment of a SOR, which was eventually adopted by the market across multiple asset classes.

A SOR is a technology that sits within a bank or broker’s front office infrastructure, agnostically and intelligently routing trade instructions to the most appropriate venue, based on a set of best execution trading parameters. The parameters can include best price, execution costs, speed, likelihood of execution and order size. Article 27 of MiFID II and the enhancement from “all reasonable steps” to “all sufficient steps” of best execution comes into force on 3 January 2018. Trading CurveGlobal products on LSEDM already offers competitive pricing, lower transaction fees, potential margin offsets and free market data, but using a SOR that includes our products could potentially put you ahead of the curve.

MiFID II
The London Stock Exchange Derivatives Market (LSEDM) went live with their MiFID II technical release on Monday 13 November 2017. This version incorporated all the MiFID II changes and requirements, and was tested and rolled out ahead of the 3 January deadline. Trade reporting adaptations, liquidity provider identifiers, latency and market maker obligations are just a few of the improvements. CurveGlobal products are listed and traded on LSEDM and therefore benefitted from this upgrade. If you would like to speak to the team about any of the changes, please contact info@curveglobalmarkets.com.

Portfolio Margining
Regulatory approval has been granted to LCH for “Spider 2.0”. This extends portfolio margining to include Long Term Interest Rate (LTIR) futures. This enhancement will allow the potential for CurveGlobal LTIRs to offset with swaps in the wide variety of currencies available in LCH SwapClear. LSEDM Members trading CurveGlobal products will be able to use this service and will enjoy the most comprehensive ETD vs OTC offsets available at any CCP. SwapClear houses over $310 trillion of Interest Rates Swaps, backed by over $110 billion of initial margin. 

SONIA Futures
CurveGlobal, together with our partners LCH and LSEDM, is finalising a SONIA futures contract designed on the basis of on feedback from trading houses, clients and asset managers.

Members of the CurveGlobal team have recently attended the BoE working group, Futures Committee, where the design characteristics were discussed. CurveGlobal plans to launch a SONIA future in 2018. 

Principal Trading Fee Discount Scheme
The Principal Trading fee discount scheme for customers trading CurveGlobal products on LSEDM has been renewed, providing Principal Trading firms with zero trading and clearing fees when they trade in excess of a certain number of lots per month. This scheme will now continue until 30 June 2018. For more information, please contact the CurveGlobal team. 

Trade Concept:
Fractional Pricing using Block Trades

For this month’s Trade Concept, we look at Block Trading using CurveGlobal European Interest Rate Futures. 

The ability to trade fractional blocks in CurveGlobal products on LSEDM offers value for the market in a world of MiFID II and best execution.

• Offers greater choice on price granularity 
• Fractional Pricing is created using Multiple Block Trades
• Fractional Priced Blocks provided by Bank and Liquidity Providers
• No Fee Surcharge for Block Trades on CurveGlobal
• Lower Exchange Fees and Clearing House Fees
• Compliant with LSEDM exchange rules

Example 1: CurveGlobal 3-Month Sterling Whites contracts
(front 4 quarterly contracts)

• The minimum block size for 3 Month Sterling White contracts is 200 lots
• Utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• Price Granularity of 1/10th of a tick is illustrated 

Example 2: CurveGlobal 3-Month Euribor® Red contracts
(2nd set of 4 quarterly contracts)

• The minimum block size for 3-Month Euribor® Red contracts is 150 lots
• Utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• Finer price granularity can be achieved

Example 3: CurveGlobal Bund calendar spread

• The minimum block size for Bunds is 50 lots, for each month
• Buying the calendar spread [example as shown]
• Dec17 is priced at the “Ask Price”
• Mar18, utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• The calendar roll can be traded at finer price granularity

Clearing CurveGlobal futures at LCH

• CurveGlobal Futures clear within Listed Rates Clearing at LCH, offering cross currency and maturity opportunities across the futures contracts e.g. Gilts vs Bunds 
• In addition LCH Spider allows the offset of OTC positions held within SwapClear and Listed Rates STIR Futures for a portfolio of positions (LTIR will be included in future release Spider 2.0)

LSEDM Document Library

• Derivative Trading Calendar 2017 and 2018
• LSEDM - Trading Services Description (current)
• LSEDM - Trading Services Description (effective 3 January 2018)
• Bilaterally Negotiated Trade Guidance

Examples provided for illustrative non-reliance purposes only, potential benefits indicated are approximate and may not be realised.

A poll for a worthy cause

When the open interest at CurveGlobal reaches 500,000 lots, one of the team will complete a challenge for charity.

Which team member should be up first?

1. The whole team to do an army assault course

2. James Brinsden to do a tough mudder

3. Emily Grimshaw to train and compete in a female boxing match

4. Andy Ross to take salsa lessons

Monthly volumes and OI

Season's Greetings from the CurveGlobal Team

Press articles of note

THE FRAUGHT SEARCH FOR A LIBOR FALLBACK
Risk.net

TEARING UP THE MARKET: FCMS HAIL NEW COMPRESSION TECHNIQUES
Risk.net

IN A PRE-BREXIT SKIRMISH WITH THE CITY, EUREX TAKES ON LCH
The Economist

EUROPEAN SPLIT ON NSFR WORRIES DEALERS
Risk.net

Where you can find us

FOW // DERIVATIVES ISRAEL 2018
FOW Derivatives Israel
6 February // Sheraton Hotel // Tel Aviv

FIA // BOCA 2018
FIA Boca
13 - 16 March // Boca Raton Resort & Club // Boca Raton, FL 

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