The number of market participants holding large open interest positions in FX futures has reached an all-time high, while interest in equity futures is growing strongly 100 days out from the final phase of the Uncleared Margin Rules (UMR), according to data from CME Group.
As of 10 May, holders of large open positions in FX futures hit a record 1,312 while open interest in FX futures and options reached over 3 million contracts.
CME said asset manager adoption led the growth surge, with their positions growing by two thirds (60%) since the end of the second quarter in 2020.
Buyside accounts held the most open interest positions in cleared, listed EUR/USD FX futures at 80%, with hedge funds and dealers also holding significant positions at 15.4% and 24.1%, respectively.
On the equity futures side, Adjusted Interest Rate Total Return futures (AIR TRFs), designed to provide a total return exposure with an overnight floating rate built in were trading around 5,000 contracts per day in 2022 year to date, (up over 250% versus 2021 average daily volume.
Market participants have been subject to increasing margin requirements ahead of the final phase of UMR in September, which forces major changes to the way collateral is posted as initial margin (IM) for OTC derivatives.
OTC Equity Index Derivatives and FX options demand higher initial requirements because of how the International Swaps and Derivatives Association (ISDA) SIMM is applied.
“While certain FX instruments, such as forwards, are not in-scope products for UMR, they do contribute to the notional driving the qualification,” said Paul Houston, global head of FX products at CME Group.
He added,” This is a key factor as to why more asset managers are using FX futures as a replacement for some of their OTC FX Forward exposure as they do not count towards the rules.
The final phase of UMR, where the threshold reduces to $8bn, will see many more firms impacted and this activity has increased correspondingly. For those firms subject to the rules, CME FX Options offer considerable efficiencies relative to ISDA SIMM, through clearing and netting exposures against a central counterparty.”
©Markets Media Europe 2022
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