CME Group Inc. is preparing for a new run at the $3-trillion-a-day global currency market.
The push comes just months after the futures-exchange operator pulled the plug on an earlier effort to provide clearing, or financial guarantees against trading-partner failure, in foreign exchange. The two-year venture, run jointly with New York-based Thomson Reuters and known as FX Marketspace, gained little traction because dealers resisted changes to the way they traded.
You couldnt obtain clearing without trading, said Kimberly Taylor, who heads CMEs clearinghouse, on why FX Marketspace failed. Chicago-based CMEs new attempts to provide services to the over-the-counter markets are much more focused on clearing, she said.
CME, which runs the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Mercantile Exchange, is making a broad push into the over-the-counter markets as it seeks revenue to make up for declines in its main futures-trading business. Recent announcements include plans to offer clearing in interest-rate swaps and, through a joint venture with hedge fund Citadel Investment Group, in credit default swaps.
The biggest opportunity that we havent mentioned is over-the-counter foreign exchange, Ms. Taylor said. I cant imagine that we wouldnt look at that. She declined to provide details.
The vast majority of currency trades are between two participants – often large banks or hedge funds. A clearinghouse would step in between them, becoming the seller to each buyer and the buyer to each seller, thus protecting participants from the failure of a trading partner. While a large percentage of currency trades are completed in a matter of days, there may be opportunities to provide clearing for longer-term credit, Ms. Taylor said.
A CME spokesman declined to comment on CMEs plans except to say, We are continuing to look for ways to grow our business to the benefit of customers and shareholders.
CME already offers futures on currencies, and last month launched a line of currency futures that are being marketed to individual traders. FX Marketspace was closed in October after failing to meet a deadline for generating profitability.
Ann Saphir is a reporter at Crain's Chicago Business, a sister publication of Pensions & Investments