Curve eyes changes on first anniversary - CEO

Curve eyes changes on first anniversary - CEO

The LSE Group-backed CurveGlobal launched one year ago on Tuesday to challenge the European interest rate futures trading duopoly enjoyed by the Intercontinental Exchange and Deutsche Boerse’s Eurex.

Speaking exclusively to FOW on the anniversary of the platform’s launch, CurveGlobal chief executive Andy Ross said he is pleased with the progress made by the platform in the past 12 months but he is also planning changes.

CurveGlobal launched on September 26 2016 with six of the most traded European interest rate futures contracts, promising lower fees than the incumbents and other incentives such as a clearing fee waiver and free market data.

Volumes were light in the early days and this was partly linked at the time to speculation over the future of the platform fuelled by the proposed merger between the LSE and Deutsche Boerse, one of Curve’s main targets.

That trade collapsed in March when the European Commission demanded a concession that the LSE was not prepared to accept and the future of Curve was clearer. It is no coincidence volumes started picking up also from around that time.

The platform, which has the LSE as its largest stakeholder and also lists seven banks and US exchange CBOE Holdings among its consortium of owners, is currently trading up to about 20,000 lots a day with open interest of about 120,000 lots, according to LSE data.

Ross told FOW: “We are about to hit 1.5 million lots traded and we have new firms joining all the time. In terms of volume, it took us some 41 days to do our first 100,000 lots and less than eight days to do our last 100,000. September is looking like a record month already.”

The chief executive, who was formerly the head of swaps clearing at Morgan Stanley, said he has commissioned some analysis to demonstrate that Curve presents serious competition to the incumbents.

“We have done some work with LiquidMetrix, the independent, best execution analysis firm, and they found at the short end of the curve, we tied on best price 91% of the time and have the best price 2% of the time so we are as good as or better than the competition 93% of the time.”

Ross added: “As you go along the curve, our performance is better, with us tied for best price 60% of the time and better 24%.”

The industry is steadily working itself up into a Mifid II frenzy as the clock counting down to the European directive’s implementation passed 100 days this week.

But Ross sees the controversial European rules, and specifically the requirements around best execution, as beneficial to the success of Curve.

He said: “Under Mifid II, firms are obliged to take all sufficient steps to ensure best execution taking into account many factors including price, cost, speed etc. They are also required to have a process in place which plays to our strengths given we have the best price the majority of the time and charge lower fees and nothing for market data.”

Curve clients, like pretty much all trading firms, have to prepare for Mifid.

He said: “All of the LSE derivatives markets (Idem, LSE DM and Curve) run on SOLA so we are enabling clients to test the Mifid upgrade once and get them “passported” across to the other platforms rather than test on each platform.” Ross said this group-wide approach is designed to make the process of complying with Mifid as painless as possible for clients.

Ross added: “The testing environment is already available and the deadline for migrating is planned for November 14.”

Looking ahead, Ross said he is confident of increasing the number of banks trading on the platform to 12 from nine and plans to expand Curve’s shareholder group.

He is however sceptical that non-banks will become members of Curve over time.

“I spend a lot of time talking to the buy-side and Curve has never been a bank crossing network – it is a liquid order book for all participants. For a number of reasons I think it is unlikely that any buy-side firm will become a direct member of a futures exchange,” Ross said.

Ross said Curve passed in September a milestone with a new arrangement for block trading.

“Last week, we did our first block trade that was negotiated bilaterally between a buy-side firm and a bank and then crossed at the mid-price on Curve. That is particularly interesting for real money accounts.”

The chief executive said he is also planning additional products to complement the current roster of interest rate futures contracts and is looking forward to the introduction by its clearing provider LCH of a cross-margining service that applies to Curve’s longer-dated bund, bobl and schatz contracts.

The ability to offer clearing savings for the longer-dated contracts is important to the success of the LSE initiative because most of the swaps eligible for portfolio margining are in longer dates.

Ross concluded: “It has been a factor in holding Curve back along with some other well-documented headwinds, but despite this the volumes are continuing to grow which is a very positive sign. Over 40% of our trading volume has been in the past three months for example.”

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