Volatile Markets Spark CME Forex Volume Surge During May

Heightened volatility produced surging trade in foreign exchange derivatives during May at CME Group Inc. (CME), compared to the previous month.

However, forex volumes fell from year-earlier levels because May of 2010 generated even greater volatility.

Average daily volume was up 22% from April, with roughly 972,000 contracts changing hands per day, amounting to an underlying value of $135 billion.

Compared to May of last year, forex volume was down 26%, CME reported Thursday.

CME has positioned forex as a major area for volume growth, as it tries to lure participants who might otherwise conduct their currency transactions in over-the-counter markets.

Volume gains in May were due largely to the breakdown of commodity prices early in the month, accompanied by a drop in the value of the euro currency and rally in the U.S. dollar. The dollar weakened later in the month on data showing the U.S. economic recovery is slowing down.

Investors' concern that Greece might default on its debt also guided the euro's move, although neighboring European nations seemed willing at the end of May to issue another financial bailout.

"There was a lot of volatility, but it was front-loaded to the beginning of the month when currencies and commodities made their biggest move," said Glenn Holland, managing director of CQ Solutions, a Chicago-based broker-dealer.

CME failed to top volume totals from year-ago levels as the surge in trading activity back then was tied to the stock market's flash-crash on May 6, 2010. The Greek debt crisis also contributed to last May's volatile action.

Volume on the euro -- the most-actively traded currency at CME -- was up 40% from April, but down 20% from the same time a year ago.

Trading activity rose 52% for the month for derivatives on the Australian dollar, which is closely tied to changes in commodity prices.

Volume for the commodity-sensitive Brazilian real jumped 325% from April, but its total volume was a relatively small 24,000 contracts. Monthly volume was up 63% for the Mexican peso.

May was marked by low volatility for the Japanese yen, as its volume fell 5.8% during the month and was 34% lower compared to the same time a year ago.

The Russian ruble's trading volume plunged 40% from April to May, with almost 45,000 contracts changing hands. However, activity on the ruble, considered an emerging market currency, was up 160% from the same time last year.

-By Howard Packowitz, Dow Jones Newswires; 312 750 4132; howard.packowitz@dowjones.com

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