Good morning all,

I would like to take this opportunity to wish you all a Happy New Year and offer again my thanks for your support.

Normally I don’t spend too much time looking in the rear-view mirror, especially at trading facts rather than lessons learnt, but I thought it was worth quickly mentioning a few 2017 highlights for CurveGlobal.

Open Interest

• Achieved a max OI of 2.678% of the total volume of Short Sterling STIRS traded in the market on 20/12/2017

• Achieved a max OI of 1.860% of the total volume of Euribor traded in the market on 29/12/2017

• OI increased from 39,430 on 02/01/2017 to 167,368 on 03/01/2018 → Annual growth of 324%

All of this growth achieved into the teeth of the MiFID II implementation.

Over the past week, the industry’s ability to implement and manage the changes that have arisen out of MiFID II has been impressive. The implementation was not phased over asset classes, or counterparties but it was rolled out in one “big bang”. LSEDM & CurveGlobal had no issues on 3 January, a testament to the hard work of the team, but also due to the focus and dedication of our customers in preparation and testing.

So what about 2018 for CurveGlobal? It looks to be an exciting ride! With the focus shifting from MiFID II implementation, we now have lots on the agenda. You’ve asked us to work on new services, and products such as Libor Replacement, starting with the SONIA future. Approval for portfolio margining on the long-term “bond futures” has been granted by the regulators; and we are focusing on working with LCH towards implementation. Additional futures contracts and our first options are due out later in the year. It’s got all the makings of a game-changing few months.

I can’t wait to see the first client reports on MiFID article 27 (best execution) that evidence the pricing and liquidity on offer in CurveGlobal products.

Lastly, as you may remember we asked people to vote for and suggested charity events for the team in the New Year. While the voting is still open and my thanks for all the suggestions, one has already been enthusiastically undertaken. Ralph, Ian, Richard, Fiona and I have all entered a diet-off, results to come after Easter!

Sincerely,
Andy Ross
aross@curveglobalmarkets.com

MiFID II Reactions

By: Emily Grimshaw

Unless you’ve being living on a remote island, you’re probably aware that the second review of MiFID comprising the Regulation and Directive became effective in EU member states on 3 January 2018. MiFID II aims to create a fairer, more transparent and competitive marketplace with added protection for the investor. The MiFIR regulation contains 55 articles while the MiFID II directive has 97, taken together with many delegated regulations this is not a small piece of EU legislation.

It would be impossible to review all of the MiFID implementations but we thought a few spots might be of interest.

On the eve of MiFID II, and the following morning an exemption was granted by UK and German Regulators to several major exchanges and clearing houses operating within the EU, meaning that these venues would not be required to comply with open access rules until 3 July 2020. The question to market users is, in whose interest is it to limit competition and open access?

Applications to clear CurveGlobal products at other clearing houses haven’t yet been lodged, as we’ve been asked by customers to focus on making the trading landscape more competitive and clear into a global multi-currency pool at LCH. If competing exchanges wanted to come and clear at LCH, and allow their products to be fungible with CurveGlobal products listed on LSEDM, we’d welcome the competition. We believe this could potentially reduce systematic risk and reduce costs and margin for a number of customers.

London Stock Exchange Group and LCH have long maintained their open access stance and did not ask for an exemption. Open access is the concept of fair, open competitive markets placing customers at the heart of the business by offering choice of trading venue or clearing house. While it’s difficult to imagine multiple order books with multiple clearing locations, allowing choice provides the optionality for customers to maximise their capital efficiencies. With access to the biggest OTC liquidity pool at LCH, this is in effect what you have with CurveGlobal already. In a world where competition is king, and a major part of the new EU legislation, do clients want to trade as captives to the expensive legacy structure?

What is interesting and will drive competition are the new best execution requirements. These cover derivatives and are not just about price, but total cost. Article 27 of MiFID II states that as well as taking “all sufficient steps to obtain the best possible result for their clients” firms have to “establish and implement effective arrangements” for complying with and monitoring best execution. CurveGlobal products listed on LSEDM continue to be best price or tied the majority of the time, while offering lower transaction fees, free market data, potential margin savings and the ability to trade fractional blocks for increased price granularity. We are looking forward to seeing the new best execution requirements drive competition and create transparency for our customers.

The full market impact of MiFID II will still take months to become apparent. With the introduction of the Organised Trading Facility (OTF), as well as additional requirements around systematic internalisers, open access, best execution, pre- and post-trade reporting, market making, algorithmic trading, LEI’s, waivers and commodities to name a few, 2018 looks set to be interesting year.

Trade concept: 
Fractional Pricing Using Block Trades

MiFID II implementation has seen LSEDM update the CurveGlobal minimum contract volumes requirements for wholesale order types, Block Trades, Basis Trades, and Exchange of Futures for Swap.

The volume requirements are now set at the same volume threshold for all maturities of a contract.

This Trade Concept looks at Block Trading using CurveGlobal European Interest Rate Futures, using the updated volume thresholds. The Finer Price Granularity offered by multiple block trades enhances the MiFID II offering from CurveGlobal.

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

• The minimum block size for 3-Month Sterling is now 20 lots across all maturities
• 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® in now 10 lots across all maturities
• Utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• Finer price granularity can be achieved

Example 3: CurveGlobal Long Gilt

• The minimum block size for the Long Gilt is now 50 lots across all maturities
• Utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• Price Granularity of 1/10th of a tick is illustrated

Example 4: CurveGlobal Bund Calendar Spread

• The minimum block size for Bunds is now 50 lots, for each month
• Buying the calendar spread example is shown
• Mar18 is priced at the Ask Price
• Jun18, utilising two prices and sizes of blocks trades (subject to minimum block threshold)
• The calendar roll can be traded at Finer Price Granularity

Block Trading using CurveGlobal European Interest Rate Futures 

• 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

Clearing CurveGlobal Futures clear 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 (effective 3 January 2018)
• LSEDM – BNT Threshold Parameters
• Bilaterally Negotiated Trade Guidance

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

Monthly volumes and OI

60 seconds with...

Richard Walker, Head of Business Development and Marketing
at CurveGlobal

1. What are you listening to/reading these days?

I’m reading Start With Why by Simon Sinek. It is based on the third most-watched TED talk of all time. It’s all about why two bicycle shop owners, Wilbur and Orville Wright, were more successful than Samuel Langley (who was bankrolled by Andrew Carnegie and Alexander Graham Bell) in getting their plane off the ground first, and how the two Steve’s (Wozniak and Jobs) built a company to compete with IBM. In their first year they made a million dollars, in year two ten million; they made one hundred million in year four and by year six their company was worth a billion dollars and had 3,000 employees. I’m also spending far too much time listening to this playlist. I’m a frustrated guitarist and these are songs that I’m currently jamming along to.

2. What is the one thing you can’t live without?

My PRS P245, my Line 6 Helix floorboard and Marshall JVM 410c.

3. If you could invite any four dinner guests past or present who would you choose?

William Shakespeare, Oscar Wilde, Leonardo da Vinci, and Jerry Garcia (but I’ll take any four people that will bring a decent bottle or two and give me a hand with the washing up).

4. You can do any job for just one day, what would it be?

Guitar for The Grateful Dead (Not replacing Jerry Garcia or Bob Weir, just playing alongside). If I had to choose the actual day then likely August 13, 1975 at the Great American Music Hall in San Francisco, Calif, but any SF gig would do.

5. Ten years ago, where did you think you would be now?

I’d be lying if I said I’d given it much (or frankly) any thought. Certainly not the job I’m doing (as CurveGlobal didn’t exist) but (and I do understand that this is a really lame answer) a Business Development / Marketing role in Financial Services. I could lie and say something more exotic, but it’s the truth!

A poll for a worthy cause

The poll is still open! 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

Press articles of note

MIFID II LAUNCH OVERSHADOWED BY FUTURES DELAY
The Financial Times

MIFID II CAN SUCCEED IF IT ENCOURAGES COMPETITION
The Financial Times

EU CLEARING HOUSES GIVEN LAST-GASP MIFID REPRIEVE
Business Insider

EUROPE'S SPRAWLING NEW FINANCIAL LAW ENTERS INTO FORCE
The Economist

Come visit us here

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

FIA // SIFMA ASSET MANAGEMENT DERIVATIVES FORUM 2018
FIA SIFMA Asset Management Derivatives Forum
7 - 9 February // The Ritz-Carlton, Laguna Niguel // Dana Point, CA 

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.