When we started CurveGlobal it was with a different mindset. We looked at FX markets, cash equity markets and OTC swap markets, and knew that competition had brought significant advantages to the users of those markets. For example, tighter spreads, lower transaction fees, but most importantly lots of different ways of trading. Ways of trading that suited your size of position, time of trade or execution risk appetite.
But could it work in futures markets? Could we make changes, with some look-a-like products and some new innovative ones? Could we offer greater competition by developing different ways to trade? Did the market want competition or a replacement? For sure, competition brings many obvious benefits but it can also fragment liquidity.
As you can see in Ian’s Trade Concept below, there has been an explosion in growth in the block market as a result of our Adaptive Pricing – this is a different way of trading futures. I like to think of Adaptive Pricing as a voice-based, admittedly, RFQ-like mechanism for futures. Trade between the bid and offer at a price you like, in the size you want. This is not to say a central limit order book isn’t important – it is vital. But providing the choice of how you trade in different circumstances – utilising an RFQ-like mechanism and an order book – does work. We can see this measured in the significant increase in brokers supporting Adaptive Pricing, on the back of increased client demand – who doesn’t want to trade at a better price? Please let us know if you want an introduction to any brokers offering this service.
Competition benefits the market
However, there is an even more fundamentally important point about change. At CurveGlobal we think we’re close to proving that you can offer two (or potentially more) pools of liquidity in futures markets – that these are not single pools of liquidity. Nearly every futures market in the world has been a closed shop, grown from floor to electronic exchange, where you have to trade in the way you are told. Indeed, in Europe we’ve seen the rather unedifying sight of some exchange groups rallying against the idea of competition and open access, as it might be bad for them and good for customers. Wow! Our mindset is: “What’s good for customers is good for us”.
At CurveGlobal, we believe that futures markets globally benefit from competition – offering more ways of trading, different fees, tick increments and data costs. We think the example in Europe playing out in real-time is proving this. We see the benefits far outweighing any fragmentation of liquidity, and it seems that a growing number of buy-side and sell-side firms share our view.
Our success and increased client participation is why we’re seeing more banks offering clearing services and others joining directly. This is leading to growing volumes, increasing OI and record volume days. This is not to say that we’ve arrived at our destination – we’ve much further to go. But the number of folks joining directly and indirectly are saying that we’ve crossed the chasm – this isn’t new but is part of a relentless market structure change in listed futures that they want to be part of. Hurrah to that! And my humble and continued thanks.
Our absolute belief, however, is that this couldn’t work without us being able to clear and portfolio margin at LCH, as those who take the positions are able to hedge the risk elements across related products (and benefit from margin savings). This is a partner that also believes in open access and listening to its customers.
Talk to us
So where do you stand? We have the utmost respect for firms that take the view that markets work best with a single exchange where buyers meet sellers. We’d be delighted to talk with any firm and debate the pros and cons of competitive markets. But if you agree with us, we’re even keener to talk to you to see if we can help drive better investment outcomes for you and your clients. We believe that credible competition gives every market participant a free call option; and we know that many of you are very capable of valuing that.