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Portfolio > Alternative Investments > Hedge Funds

Hedge Funds Break Two-Month Losing Streak

By Staff Writer

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CHICAGO (HedgeWorld.com)–Eurex will add foreign exchange futures to its derivatives menu Sept. 23, using its Eurex US platform to offer 23-hour daily trading for currency-pair contracts.

To encourage currency players to trade through Eurex, the exchange is waiving fees for all users through the end of the year after the launch. Thereafter, member firms will be charged 10 cents (US) per contract side (or 50 cents per US$1 million) for their proprietary trading activities, while end users and customers will pay 50 cents per contract side, or US$2 per US$1million. A variety of other incentives will be offered to market makers and early adopters who generate consistent and increasing volume.

Initially Eurex will offer six currencies paired with the dollar–euro, Australian dollar, British pound, yen, Swiss franc and Canadian dollar–along with four cross-currency pairs: euro/yen, sterling/yen, euro/Swiss franc and euro/sterling. Other currencies may be added in the future, executives said Thursday.

At a press conference, Eurex Chief Executive Rudolf Ferscha said the exchange is jumping into currencies to tap into the continuing growth of FX as an asset class, noting that dedicated currency management strategies are becoming increasingly commonplace in Europe and the United States as an increasing number of market participants, including hedge funds, are gaining access to interbank prices via electronic trading platforms.

Estimates show the foreign exchange market hovering around the US$2 trillion mark in daily turnover.

“By entering the FX market, Eurex will further expand its portfolio of financial derivative products,” Mr. Ferscha said. “Structural changes in the global FX markets have further driven use of FX products and increased demand for the transparency and reduced counterparty risk. Listing FX contracts on Eurex US will offer the global marketplace the opportunity to trade FX on a liquid and transparent market with a highly effective distribution network.”

The move into currencies comes at a time when Eurex US shows signs of throwing in the towel on its flagging effort to host trading of U.S. Treasury products, a market in which it has had difficulty making inroads against exchanges such as the Chicago Board of Trade and the Chicago Mercantile Exchange. Satish Nandapurkar, chief executive of Eurex US, acknowledged that the company will continue to list Treasury products but won’t spend any more on new sales, marketing or incentive programs for Treasuries. The head count at Eurex US’s Chicago headquarters has been reduced from 34 at launch time to 26. Mr. Ferscha said original risk-sharing agreements with equity partners will continue, bringing in revenues of US$18 million by their expiration at the end of 2006

Asked if Eurex US has become a “branch office” of Eurex in light of the reductions and the struggles with Treasuries, Mr. Ferscha said, “We are refocusing. We have seen the realities of the marketplace.”

He noted that Eurex US is continuing to pursue antitrust litigation against CBOT and CME. It accuses those exchanges of predatory pricing and illegal interference to delay regulatory approval of Eurex US’s exchange application as well as regulatory approval for its Global Clearing Link.

Messrs. Ferscha and Nandapurkar said Eurex continues to await U.S. regulatory approval of Phase II of the link, which they said would allow members of Eurex Clearing to clear all products traded at Eurex US and to use one common collateral pool to portfolio-margin European and U.S. products. The executives said the link would create for the first time a fully fungible market across the Atlantic.

Contact Bob Keane with questions or comments at: [email protected].

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