Curve chief Ross reflects on closure of rates market

Andy Ross, the chief executive of CurveGlobal, has said the LSE Group-backed derivatives market is closing down because its shareholders have decided to withhold the necessary funding to continue.

The UK exchange group said late on Tuesday the London-based European interest rate futures market will close on Friday January 28.

Speaking less then 12 hours after the announcement, Ross said Curve’s shareholders, which include the LSE Group itself, some of the world’s top investment banks and US exchange Cboe Global Markets, are unwilling to fund the market going forward.

Ross, who has run Curve since its launch in September 2016, said on Wednesday morning: “The shareholders of CurveGlobal have reviewed the business and taken the decision not to put any additional funds in, so we are winding down its business.”

The CEO said the opportunity presented by the transition away from Libor into new rates such as the UK SONIA did not materialise as planned.

“We were working hard to make our transition into SONIA successful and saw that as a golden opportunity for us but the reality is that our market share in SONIA has been somewhat static. It has been quite hard to make an impact on that.”

Curve’s three month SONIA futures contract showed some promise in the first half of the year, trading 1.6 million lots in the six months to the end of June, which was up 1200% on the total for the same period last year.

But Curve’s overall volumes remained tiny compared to those of its main rival ICE Futures Europe, the long-standing home of UK short-term interest rates products.

Ross said: “It is frustrating that we had the most liquidity and best prices but nobody trading on it so we were not sure what to do about that. We became conscious that we weren’t building a momentum to carry us to the next step of the business.”

The Curve boss believes it is easy to underestimate how difficult it is to build a critical mass of traders on a new venue.

He said: “I think the scale of change you need in terms of muscle memory and connectivity is precipitously hard. Getting Independent Software Vendors (ISVs) and other people to connect and trade is very hard.” 

But the bottom line is that Curve simply wasn’t that different from the incumbent it was trying to disrupt. It had basically the same products as ICE Futures Europe, backed by the promise of lower margins for firms that clear their correlated interest rate swaps in LCH.

“Why people haven’t connected and traded more generally on Curve, the reality is that building a me-too that doesn’t have enough uniqueness has not been successful. It had to have something different,” said Ross.

“What we now know is the strategy of look-a-likes with portfolio margin has been unsuccessful - you can’t build a critical mass - despite our best efforts - the margin USP isn’t enough. We thought that was a good strategy and that was the one we deployed.

“In hindsight, we have built a smaller imitation of a bigger market and everyone has said: “I’ll just go to the bigger one, I don’t need a smaller imitation of it.””

Ross is also keen to point out that Curve launched and operated during a unprecedented period, citing the merger between the LSE Group and Deutsche Boerse that overshadowed its early days, Mifid II, Brexit and latterly the COVID pandemic: “There are not a lot of tail-winds in that macro environment.”

Looking back, Ross is similarly quick to highlight some Curve successes: “We introduced an inter-commodity spread product of SONIA vs Libor, we were the first to do that. We brought ticks in on some products, we innovated in incremental blocks so there are things that we have done.

“If you consider that Curve and Nasdaq NLX have been around for a long time,other exchange fees haven’t gone up a lot. I’d be really interested to see what fees do in the next couple of years.”

Nasdaq NLX was a forerunner to Curve that tried to take on ICE and Deutsche Boerse with cheaper fees and margin offsets though it similarly failed to build critical mass and, ultimately, closed in 2017. 

For now, Ross and his team are working to ensure an orderly unwinding of the open positions still on Curve and then the ultimate closure of the market in January next year.

He said: “Our focus is ensuring we close the market down effectively and clients can get out of their positions as efficiently and as cheaply as possible. We’ll do whatever we can to be supportive. That is what the team and I focused on over the next few months.” 

Ross added: “This is clearly a difficult time for our staff, but we are working closely with them and we hope to be able to redeploy as many people as people as we can within the group.”