UPDATE: CME Launches NDF Clearing Services For Dollar Vs Chilean Peso
May 16 2011 - 3:23PM
Dow Jones News
CME Group Inc. (CME) launched a post-execution clearing service
for non-deliverable forwards on the U.S. dollar versus the Chilean
peso, marking the first step in its plan to offer clearing services
for over-the-counter foreign exchange transactions.
The move reflects growing demand for clearing services among
local Chilean market participants, said the company's FX products
director, Craig LeVeille.
CME and other exchanges have been expanding efforts to handle
more of a $4 trillion-a-day foreign exchange trading business
dominated by over-the-counter products. Hedge funds and other
proprietary traders have become more active in the forex market,
increasing the appeal of centralized clearing services provided by
the exchanges.
The new offering is "the first step in our broader initiative to
provide clearing services for a wide range of FX products later
this year," LeVeille said.
CME already offers foreign-exchange futures contracts for more
than 50 currency pairs, said CME Group spokesman Michael Shore.
The company said Monday its offering will mitigate counterparty
risk, expand liquidity and improve operational efficiency for
trades of the non-deliverable forwards--a type of futures
contract.
The Chilean peso was chosen as the service's first currency
offering in this initiative largely in response to client demand,
Shore said.
"There's a lot of liquidity in the Chilean peso, and there was a
market need to clear this style of transaction," he added.
Estimates for average daily volume for the Chilean peso NDF
over-the-counter market range from $5 billion to $10 billion, he
said.
"Chile has a strong economy generating large investment
exposures to foreign assets," said FX products director LeVeille.
"Local institutions can use our clearing service to mitigate the
growing credit constraints they face when hedging currency risks,
and this should lead to a boost in liquidity and an expansion in
cross-border activity."
The move also reflects growing investor interest in Latin
American and other emerging-market currencies, analysts said.
"There's just more and more trading popping up in emerging
markets," said Win Thin, global head of emerging-market strategy at
Brown Brothers Harriman.
The growth of local Chilean markets, along with the country's
"fairly clean" monetary and fiscal policies have helped increase
market demand for the Chilean peso, said Benito Berber,
foreign-exchange strategist at Nomura Securities.
"It's very interesting that CME is expanding to these markets,
and this highlights the interest or the demand that we also see
here from macro hedge funds in terms of play in Chile," he
added.
-By Erin McCarthy, Dow Jones Newswires; 212-416-2712;
erin.mccarthy@dowjones.com
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