CURVE POINTS

Hi All,

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.

Sincerely,

Andy Ross
aross@curveglobalmarkets.com

LIBOR: What's next for Sterling?

By: Milain Thakkar

Major reform is already underway in the search for a LIBOR replacement with the Swiss, UK and the US leading the charge. The intention is clear but what we don't know at this stage is whether we’ll be migrating from one small single set of benchmarks to another. To address this and to support the need to preserve capital, a view shared by banks alike, we’ve been developing a Sterling Overnight Index Average (SONIA) futures contract to be listed on LSEDM and cleared at LCH, one of the largest clearers of SONIA swap contracts. This will support financial reform whilst allowing users to benefit from potential capital efficiencies.

VOLUMES

TRADE CONCEPT: Hedging OTC with CurveGlobal Futures

For this month’s Trade Concept, we look at a futures hedge from a bank trader’s perspective and the potential benefits of hedging a new client trade with CurveGlobal STIR Futures cleared at LCH. Consider the following scenario:

• The bank’s trader is bearish of the GBP Rates Market and has his book positioned for rising rates. 
• The bank’s client also has a bearish stance on the market and decides to enter a 2 year payer swap (forward starting) with the bank.
• In order to maintain the same bearish bias in his trading book the bank's trader decides to hedge with futures.

For example:

MARGIN ILLUSTRATION

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

PRESS ARTICLES OF NOTE

CCP DISCLOSURES 2Q 2017 - WHAT THE DATA SHOWS
Clarus Financial Technology 

INDUSTRY MULLS AUCTION-BASED LIBOR SWAPS TRANSITION PLAN
Risk.net

45% OF FIXED INCOME FIRMS STRUGGLE WITH MIFID II COMPLIANCE
FOW

FED POSTPONES G-SIB CAPITAL CHANGE
Risk.net

CURVEGLOBAL PLANS FUTURES ON LIBOR SUCCESSOR
Reuters

TEAM SPOTLIGHT

Catherine Eckhouse, Business Development and Marketing Manager, The Americas

Catherine’s primary focus is to grow the CurveGlobal franchise in the Americas. This includes working with Futures Commission Merchants (FCMs), SCMs, Hedge Funds, Asset Managers, Pension Funds and Insurance Companies to promote the unique aspects of CurveGlobal and determine the appetite in the US markets for creating capital efficiencies.
 
Catherine has spent nearly 25 years in the financial services and FinTech industries, most recently at Traiana in New York. Prior to that, she spent more than five years at LCH as Senior Vice President of Sales and Marketing. Catherine was the seventh employee at SwapClear in New York and was instrumental in driving client cleared business to LCH, along with helping make SwapClear become the success it is today. Catherine is very excited about the opportunities and challenges that lie ahead of her and looks forward to achieving traction of CurveGlobal in the Americas.
 
Catherine is an avid knitter and gardener. She particularly enjoys ‘playing’ golf with her husband, running and doing pilates. She is currently the social chair for her tennis club in Massachusetts.

WHERE YOU CAN FIND US

FIS // FIXED INCOME FUTURE LEADERS SUMMIT 2017
Fixed Income Future Leaders Summit
7- 9 November // Beurs van Berlage // Amsterdam, Netherlands

FIA // ASIA 2017
13th Annual FIA Asia
28 - 30 November // St. Regis // Singapore

FOW // GALA AWARDS DINNER
6 December // London

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.