It was “all systems go” on my recent trip to Chicago for the FIA Expo conference. Aside from conversations on capital (despair), MiFID II (stress!), cryptocurrencies (over-hyped?) and the Chicago cubs (more despair), one of the hot topics discussed was LIBOR replacement. As you will read in Milain’s article below, the migration from a term index (such as LIBOR) to an overnight index is not without challenges. It’s also unclear at this stage whether we will end up with a multitude of different underlying reference rates, both secured and unsecured, based on location and currency rather than a new single standard. That’s a challenge for a newcomer like us as we have to help provide an environment that builds liquidity in new products. We’ve been focusing our efforts on designing a new LIBOR replacement future – for further details please feel free to give me a call.
At the moment we are “2/5/25”…approximately 2% of the Open Interest, 5% of peak daily volume and over 25% of the order depth in money market futures. For sure, there’s a long way to go yet, but the train is on the move. As someone said to me this week, “we’d be stupid not to be building a smart order router to take advantage of that liquidity and price formation”. Good to hear! When out on the road, buy-side firms tell us the most important liquidity measure to them is the order depth at the touch on the Central Limit Order Book. It gives them a much better indication of the size of order they can get executed without moving the price, rather than simply looking at Open Interest or daily volume alone.
So type “LSIZ8 Comdty MDM <GO>” into Bloomberg and look at the volume at the top-of-book for our Dec 2018 expiring Short Sterling contract. You’ll see that on average, volumes at the top-of-book represent over 1/3 of the top-of-book liquidity across relevant trading venues. It’s one of the reasons more people are choosing to trade CurveGlobal products on LSEDM.
We’ve been listening to your suggestions for the newsletter and we’ve changed things up a bit this month so it’s easier to view the other sections. Let us know what you think; we do value your feedback!
For those of you in the UK and out with children tonight for bonfire night, remember, remember the 5th of November, and please keep the kids safe.