One of the most important indicators for exchange-traded markets is “Open Interest” — the total number of listed contracts long or short in a delivery month or market that has been entered into and not yet offset or fulfilled by delivery. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted. Even though FX Volatility continues to remain low, yesterday a record US $131 billion in open interest on our FX options was posted on CME.
Why is open interest such an important gauge for us? Open interest levels provide information regarding not only the liquidity of our FX market, but more importantly it demonstrates the market’s belief and trust in CME as a key venue to warehouse FX Options risk in increasingly significant amounts. Market participants want liquidity coupled with world class risk management to ensure the safety and soundness of their FX Options positions. Additionally, increasing open interest also means that new money is flowing into our FX market. We’ve seen this trend from an increasing amount of options contracts (our FX Options have experienced 48 percent year over year growth, and our FX Options market is now 86 percent electronic) as well as a record increase in the number of Large Open Interest Holders in our FX futures and options.
CME FX options volume and open interest 2008-2013.
The continued momentum and interest in our full suite of regulated FX products validates our central counter party clearing model and the need to manage and offset risk in today’s volatile currency markets. And while all FX platforms around the world have seen reduced volumes, we have continued to achieve record market share levels versus the broader over-the-counter (OTC) market. In fact, November CME FX futures and options averaged 112 percent of Electronic Broking Services (EBS) volume, and for the full-year we are 102 percent which is an all-time record. As we see the regulatory environment continue to evolve, in particular with Basel III, the value proposition of exchange traded futures and options on futures provides market participants with an increasingly compelling alternative to bilateral OTC transactions in order to efficiently manage their capital and margin.