CME ® FX Chicago Mercantile Exchange Inc.® Yoshio Kuno 芝加哥商业交易所驻东京事务所所长久野喜夫

CMECME®® FX FX

Chicago Mercantile Exchange Inc.® Yoshio KunoChicago Mercantile Exchange Inc.® Yoshio Kuno

芝加哥商业交易所驻东京事务所所长　　久野喜夫　　芝加哥商业交易所驻东京事务所所长　　久野喜夫　　

© 2003 Chicago Mercantile Exchange Inc. All rights reserved 2

Table of ContentsTable of Contents

• Global FX Market Overview

• CME FX Overview Product Suite

Growth

• OTC Spot, FWD SWAP markets

How FWD Gets Fixed and Dealt

OTC (including Interbank) FX vs. CME®FXOTC (including Interbank) FX vs. CME®FX

Interbank FX FWDInterbank FX FWD Price vs.Price vs. CME® FX PriceCME® FX Price

Spot Equivalent PricingSpot Equivalent Pricing

www.cme.com/e-quivalents

Market Tools

www.cme.com/fx


Global FX Market OverviewGlobal FX Market Overview

Foreign Exchange Worldwide

•The worldwide Foreign Exchange market – $1.9 trillion per day (BIS 2004)

•Spot and forward outright trading = $850 billion

•FX forward swaps = $950 billion

•FX options = $117 billion

•Hedge Funds have recently become more dominant in the FX market

•Total assets under management have risen to more than $1 trillion


Global FX Market OverviewGlobal FX Market Overview

Foreign Exchange Worldwide

•Banks remain the largest liquidity providers in the market

•Account for about 56% of the overall market volume

•The top 6 banks control approx 40% of the market

•The interbank spot market is almost entirely electronic

•In excess of 80% of trading volume


OTC FX Market CharacteristicsOTC FX Market Characteristics

Forward Swaps$944

Spot$387

Options$107

Forwards Outrights$208

Global Foreign Exchange-Daily Notional Value (billions)

Spot Market Volume-Daily Notional Value

(billions)

Interbank$301

CTA’SHedge Funds

$218

Corporates$108

Method of Interbank Execution

Electronic

90 %

Direct & Brokered10%

Geographic Volume Distribution

Europe

59%

North America22%

Asia19%

*Source: BIS Survey 2004


CME® FX Overview

Foreign Exchange at CME

• CME is the world’s largest market for exchange-traded currency futures

• Products are traded virtually around the clock on the electronic,1 floor and exchange for physicals2 platforms

1 E-mini Japanese Yen and E-mini Euro FX are traded solely on the electronic platform

2 Exchange for Physicals allow over the counter, or cash market, trades to be pre-arranged and subsequently booked through CME clearing house in order to eliminate counterparty credit risk


CMECME®® FX FX

CME FX - The World’s premier FX futures market

A global FX market place

36 available currency products

33 currency pairs (see complete list on following page)

2 E-mini Contracts: Euro and Yen Top 7 pairs

Euro/USD, USD/JPY, USD/CAD, USD/CHF, GBP/USD, USD/MXN, AUD/USD

CME$Index

Dynamic growth

CME electronic FX markets grew by 151% in 2004 vs. 2003


CMECME®® FX FX

United States DollarSwiss Franc (SF)

Swedish Krona (SE)South African Rand (RA)Russian Ruble (RU)Norwegian Krone (UN)

New Zealand Dollar (NE)Mexican Peso (MP)Japanese Yen (JY)Euro FX (EC)

Canadian Dollar (CD)British Pound (BP)Brazilian Real (BR)Australian Dollar (AD)

•CME$INDEX (USX)•AD/CD Cross Rate (AC)•AD/JY Cross Rate (AJ)•AD/NE Cross Rate (AN)•BP/JY Cross Rate (BY)•BP/SF Cross Rate (BF)•CD/JY Cross Rate (CY)•EC/AD Cross Rate (CA)•EC/BP Cross Rate (RP)

•EC/CD Cross Rate (CC)•EC/JY Cross Rate (RY)•EC/NKr Cross Rate (CN)•EC/SF Cross Rate (RF)•EC/SKr Cross Rate (KE)•E-mini Euro FX (E7)•E-mini Japanese Yen (J7)•SF/JY Cross Rate (SJ)


CME® FX futures products

Majors (ag USD) Emerging Markets (ag USD)

Cross-Rates

Australian Dollar (AD) Brazilian Real (BR) AD/CD ; AD/JY ; AD/ND

British Pound (BP) Czech Koruna (CZK) BP/JY ; BP/SF

Canadian Dollar (CD) Hungarian Forint (HUF)

CD/JY

Euro currency (EC) Mexican Peso (MP) EU/AD ; EU/BP ; EU/CD ; EU/JY ; EU/NOK

; EU/SEK ; EU/SF

Japanese Yen (JY) Polish Zloty (PLN) EU/CZK ; EU/HUF ; EU/PLN

New Zealand Dollar (NE)

Russian Ruble (RU) SF/JY

Norwegian Krone (NOK)

South African Rand (RA)

Swedish Krona (SEK)

Swiss Franc (SF)


• Euro FX:Euro FX: Cont Size: 125,000 Euro Cont Size: 125,000 Euro

Minimum move increment : 0.0001 (USD 12.50)Minimum move increment : 0.0001 (USD 12.50)

• J Yen:J Yen: Cont SizeCont Size : 12,500,000 J Yen : 12,500,000 J Yen

Minimum move increment: 0.000001 (USD 12.50Minimum move increment: 0.000001 (USD 12.50))

• Can Dlr:Can Dlr: Cont Size: 100,000 Can Dlr Cont Size: 100,000 Can Dlr

Minimum move increment: 0.0001 (USD 12.50)Minimum move increment: 0.0001 (USD 12.50)

• B Pound:B Pound: Cont Size: 62,500 British Pound Cont Size: 62,500 British Pound

Minimum move increment:0.0001 (USD 6.25)Minimum move increment:0.0001 (USD 6.25)

• Swiss FrancsSwiss Francs Cont Size: 125,000 Swiss Francs Cont Size: 125,000 Swiss Francs


• AUS Dlr:AUS Dlr: Cont Size: 100,000 Australian DlrCont Size: 100,000 Australian Dlr


Major CMEMajor CME®® FX Futures contracts FX Futures contracts

All open positions remaining at the end of last trading date are subject to physical deliveries.All open positions remaining at the end of last trading date are subject to physical deliveries.


0

70

140

210

280

350

2003200220012000 2004

294

1Q2005

Open OutcryCME Globex Privately Negotiated

ADVADV(round turns,(round turns,

in 000’s)in 000’s)

76

332

4-Year CAGR(2000 – 2004)

28%

2Q2005

CMECME®® Foreign Exchange/FX Foreign Exchange/FX Daily Average VolumeDaily Average Volume


CMECME®® FX FX


Deep, liquid markets

Significant trading volume, meaningful liquidity

CME FX, notional trading volumes (matched trades):

Average daily turnover US$ 40 billion, March 2005

Record daily turnover, US$ 79 billion, December 6, 2004

CME FX on Globex, record daily turnover, US$ 51 billion, December 8, 2004

Previous record US$ 42 billion, set December 3, 2004


CMECME®® FX FX


Transparency & anonymity, your gateway to best execution

Every price in the CME FX market is available for trading via CME central counterparty clearing

Eliminates need for bi-lateral credit lines

Real-time, dynamic prices and associated amounts displayed in a visible trading book

Best bid and offer

Next four best prices


CMECME®® FX FX


Access to new trading partners, new liquidity

Credit efficient access to sell- and buy-side FX trading counterparties

All trades are backed by the financial strength of the Chicago Mercantile Exchange clearinghouse, which eliminates the need to establish and administer bilateral credit relationships

Buy-side (hedge funds, CTAs, prop traders, individual investors, etc.) are 50% of CME FX volume


FX Spot, Swap, FWDFX Spot, Swap, FWD

• FX SpotFX Spot

Usually trades between Banks (interbank) via brokers Usually trades between Banks (interbank) via brokers

(voice and electronic) or direct. For major currencies , (voice and electronic) or direct. For major currencies ,

a Spot trade is settled (delivery of currencies) with a Spot trade is settled (delivery of currencies) with

T+2 value dateT+2 value date

• FWDFWD

A FX trade with a certain future date( as agreed up by A FX trade with a certain future date( as agreed up by

trading parties) settlement (delivery of currencies). trading parties) settlement (delivery of currencies).



• SwapSwap

A USD/JYen swap is Sale of USD against JYen with Spot Value A USD/JYen swap is Sale of USD against JYen with Spot Value

(T+2) or vis-à-vis and Purchase back of USD against JYen or (T+2) or vis-à-vis and Purchase back of USD against JYen or

vis-à-vis with agreed upon future value datevis-à-vis with agreed upon future value date

( standard transactions are usually with 1, 2,3,6, 9, 12 months ( standard transactions are usually with 1, 2,3,6, 9, 12 months

from Spot date) with the same counter party.from Spot date) with the same counter party. 　　

Example : Assume. JYen 3 months (90 days) interest date is Example : Assume. JYen 3 months (90 days) interest date is

0.10% per annum and USD 3 months (90 days) interest date is 0.10% per annum and USD 3 months (90 days) interest date is

3.75% . You buy USD one million against JYen at 110 today 3.75% . You buy USD one million against JYen at 110 today

with value date of T+2 and sell USD back against JYen at 110 with value date of T+2 and sell USD back against JYen at 110

(same as T+2) with value date of T+2+90. You being long of (same as T+2) with value date of T+2+90. You being long of

USD for 90USD for 90 days, days, you can invest and earn USD1,000,000 X you can invest and earn USD1,000,000 X

3.75%X90/360= USD9,375. To finance the Yen short, you 3.75%X90/360= USD9,375. To finance the Yen short, you

borrow JYen 110,000,000 . The cost will be JYen borrow JYen 110,000,000 . The cost will be JYen

110,000,000X0.10%X90/360÷110=USD250. You can earn net 110,000,000X0.10%X90/360÷110=USD250. You can earn net

of USD 9,125 without risk.of USD 9,125 without risk.



• SwapSwap

Instead, the 90 days USD/JYen Swap market goes this Instead, the 90 days USD/JYen Swap market goes this

way……. 1.01(Ask) 0.99(Bid):way……. 1.01(Ask) 0.99(Bid):Swap pointsSwap points. . Now you agreed to deal this transaction, 0.99 Now you agreed to deal this transaction, 0.99 Swap Swap

pointspoints with a counter party. What you have agreed with a counter party. What you have agreed

are: Buy USD1 million against JYen at 110.00 with are: Buy USD1 million against JYen at 110.00 with

value date of T+2 and Sell back USD 1 million against value date of T+2 and Sell back USD 1 million against

JYen at 109.01(110-0.99) with value date of T+2+90. JYen at 109.01(110-0.99) with value date of T+2+90.

You will lose FX but You will lose FX but gain Interestgain Interest.. The 0.99 you lost in FX approximately equals to 110X The 0.99 you lost in FX approximately equals to 110X

(3.75%-0.1%)X90/360=1.00375(3.75%-0.1%)X90/360=1.00375

In an essence, a Swap transaction is a trade of interest In an essence, a Swap transaction is a trade of interest

rates differential of a paired two currencies.rates differential of a paired two currencies.


How FX FWD Gets Fixed and DealtHow FX FWD Gets Fixed and Dealt

Example IIExample II ：　：　 Japanese A company expects to receive USD 1 million Japanese A company expects to receive USD 1 million

payment of its export in about 90 days. It intends to fix FWD rate with payment of its export in about 90 days. It intends to fix FWD rate with

its Bank Bits Bank B

1.1. A calls its Bank B to get a Spot USD/JYen quote and Bank B shows 110.00-00. A likes A calls its Bank B to get a Spot USD/JYen quote and Bank B shows 110.00-00. A likes

the rate and deals to sell USD 1 million at 110.00 (Spot). B Bank doesn’t hold the the rate and deals to sell USD 1 million at 110.00 (Spot). B Bank doesn’t hold the

position ( a long of USD 1 million) sells USD 1 million in the interbank market position ( a long of USD 1 million) sells USD 1 million in the interbank market

hopefully at a better than 110.00.hopefully at a better than 110.00.

2.2. Next, A requests Bank B the Spot transaction to be re-priced to T+2+90 days value Next, A requests Bank B the Spot transaction to be re-priced to T+2+90 days value

date.date.

3.3. Bank checks the 90 days Interbank Swap market and the market goes 1.00-0.98 and Bank checks the 90 days Interbank Swap market and the market goes 1.00-0.98 and

agreed with A to deal at 1.00 At the interbank market, the Bank agrees with a agreed with A to deal at 1.00 At the interbank market, the Bank agrees with a

counterparty (another bank) buys USD 1 million with value date of T+2 and Sell backcounterparty (another bank) buys USD 1 million with value date of T+2 and Sell back

4.4. UAS 1 million with the FX rate difference of 0.99 with value date of T+2+90.UAS 1 million with the FX rate difference of 0.99 with value date of T+2+90.

5. A company’s sales of USD 1 million against JYen with value of T+2+90 gets fixed at 109.00 (110.00-1.00)



　　　　 B Bank(T)B Bank(T)

Sells USDSells USD １１ MM to Market MM to Market (value Spot)(value Spot)

Buy USD1MM with Spot and SellBuy USD1MM with Spot and Sell

it back with Spot +90 value it back with Spot +90 value

date. The rate was 1.00date. The rate was 1.00

B Bank (T+2 )B Bank (T+2 )

Spot deliveriesSpot deliveries

Swap T+2Swap T+2deliveriesdeliveries ＠＠ AAAAAA

Cust A (T) Cust A (T) with Bank Bwith Bank B

With T+2 With T+2 （（ SpotSpot ）） date,date, Agrees to sell USDAgrees to sell USD １１ MM MM

@110.00 to Bank [email protected] to Bank B

Request re price to SpotRequest re price to Spot＋＋ 90days value date90days value date

USDYen

Yen

USD



Bank B with Swap counter partyBank B with Swap counter party

(T+2+90:Spot+90days)(T+2+90:Spot+90days)　

SwapSwap の（の（ T+2T+2+90) deliveries+90) deliveries＠＠ AAA-0.99AAA-0.99

Cust A with Bank BCust A with Bank B

(T+2+90:Spot+90days)(T+2+90:Spot+90days)

USDYen

USDYen

FWD FX FWD FX deliveries deliveries @[email protected]


OTC (including Interbank) FX vs. CME®FX-IOTC (including Interbank) FX vs. CME®FX-I

OTCOTC CME®FXCME®FX

TradingTrading OTC/bilateral OTC/bilateral Exchange TradedExchange Traded

Counter Counter Party RiskParty Risk

Yes, Credit RiskYes, Credit Risk After deal is done, the After deal is done, the change guarantees trades. change guarantees trades. Brokers are supervised by Brokers are supervised by regulator.regulator.

Margin Margin Some depends on Some depends on credit of customercredit of customer

Exchange publishes Exchange publishes minimum required margin minimum required margin rates. rates.

RegulatioRegulationn

Varies /some have no Varies /some have no regulationregulation

US: CFTCUS: CFTC

SROSRO VariesVaries US: Exchanges, NFAUS: Exchanges, NFA


OTC (including Interbank) FX vs. CME®FX-IIOTC (including Interbank) FX vs. CME®FX-II

OTCOTC CME®FXCME®FX

Trading Trading UnitUnit

FlexibleFlexible Fixed. i.e. JYen Fixed. i.e. JYen 12,500,000/contract12,500,000/contract

Bid/AskBid/Ask Discretion by trading Discretion by trading partiesparties

Minimum increment is fixedMinimum increment is fixed

PricesPrices Discretion by trading Discretion by trading parties. Usually parties. Usually interbank is better interbank is better than cust. rates than cust. rates

Can trade the price you seeCan trade the price you see

Trading Trading HoursHours

Open 24 hours Open 24 hours but but depend on banks you depend on banks you deal withdeal with

currently23 hours a daycurrently23 hours a day

Price Price conventionconvention

Dlr/Yen: 111.05-10Dlr/Yen: 111.05-10

Euro/Dlr:1.2317-20Euro/Dlr:1.2317-20

Non US currency/Dlr:Non US currency/Dlr: 　　　　　　　　　　　　　　　　　　　　 Yen:9115-9116 Yen:9115-9116 (0.009115-0.009116)(0.009115-0.009116)

EuroFX:1.2320-21EuroFX:1.2320-21


Interbank FX FWDInterbank FX FWD Price vs.Price vs. CME® FX CME® FX PricePrice 　　In Interbank pricing conventionIn Interbank pricing convention

Some currencies are quoted relevant currency per USD1.00, likeSome currencies are quoted relevant currency per USD1.00, like

Dlr/Yen, Dlr/Swiss FR. RMB, HKDlr.Dlr/Yen, Dlr/Swiss FR. RMB, HKDlr. 　　 Other currencies are quoted USD, cents per relevant currency like, Other currencies are quoted USD, cents per relevant currency like,

Stg/Dlr, Euro/Dlr.Stg/Dlr, Euro/Dlr.

All CME®FX contracts are quoted USD, cents per relevant All CME®FX contracts are quoted USD, cents per relevant

currency like, Stg/Dlr, Euro/Dlr.currency like, Stg/Dlr, Euro/Dlr.

CMECME®®FX contracts is futures contracts which have fixed FX contracts is futures contracts which have fixed

maturities (delivery dates). Those are usually 3maturities (delivery dates). Those are usually 3rdrd

Wednesdays of March, June, Sep and Dec. Theoretically a Wednesdays of March, June, Sep and Dec. Theoretically a

CME FX futures contract’s price should be close, if not CME FX futures contract’s price should be close, if not

same to interbank FWD market price with the same same to interbank FWD market price with the same

delivery date. And the two markets move parallel each delivery date. And the two markets move parallel each

other.other.


Interbank FX FWDInterbank FX FWD Price vs.Price vs. CME® FX CME® FX PricePriceExample:Example: August 17, 2005. Dlr/Yen Spot is being traded at August 17, 2005. Dlr/Yen Spot is being traded at

110.00 in the interbank market. 110.00 in the interbank market. 　　

Dlr/Yen Swap points of Spot date Dlr/Yen Swap points of Spot date （（ Aug 19) till CME’s Sep Aug 19) till CME’s Sep

2005 JYen F delivery date/32005 JYen F delivery date/3rdrd Wed of Sep 2005(9/20) is Wed of Sep 2005(9/20) is

0.35.0.35.

CME Sep 2005 JYen Futures Price would be:CME Sep 2005 JYen Futures Price would be:

110.00-0.35=109.65 and reverse it to≒0.0091449 110.00-0.35=109.65 and reverse it to≒0.0091449

⇒⇒ 91459145

the both market CME and Interbank market move the both market CME and Interbank market move

parallel each other.parallel each other.


CMECME®® FX : Spot Equivalent Pricing FX : Spot Equivalent Pricing

All CME®FX contracts are quoted USD, cents per relevant All CME®FX contracts are quoted USD, cents per relevant

currency like, Stg/Dlr, Euro/Dlr.currency like, Stg/Dlr, Euro/Dlr.

CMECME®®FX contracts is futures contracts which have fixed FX contracts is futures contracts which have fixed

maturities (delivery dates). Those are usually 3maturities (delivery dates). Those are usually 3rdrd

Wednesdays of March, June, Sep and Dec. Theoretically a Wednesdays of March, June, Sep and Dec. Theoretically a

CME FX futures contract’s price should be close, if not same CME FX futures contract’s price should be close, if not same

to interbank FWD market price with the same delivery date. to interbank FWD market price with the same delivery date.

And the two markets move parallel each other. And the two markets move parallel each other.

• On Aug. 17, 2005, if CME 2005 Sep JYen F contract is being On Aug. 17, 2005, if CME 2005 Sep JYen F contract is being

traded at 9165 and Aug 19-Sep 20 Dlr Yen Swap point is traded at 9165 and Aug 19-Sep 20 Dlr Yen Swap point is

0.35 (Yen per USD). What would be USD/Yen Spot price in 0.35 (Yen per USD). What would be USD/Yen Spot price in

the interbank market?the interbank market?


CMECME®® FX : Spot Equivalent Pricing FX : Spot Equivalent Pricing

On Aug. 17, 2005, if CME 2005 Sep JYen F contract is being On Aug. 17, 2005, if CME 2005 Sep JYen F contract is being

traded at 9165 and Aug 19-Sep 20 Dlr Yen Swap point is traded at 9165 and Aug 19-Sep 20 Dlr Yen Swap point is

0.35 (Yen per USD). What would be USD/Yen Spot price in 0.35 (Yen per USD). What would be USD/Yen Spot price in

the interbank market?the interbank market?

Reverse 9165(0.009165) to 109.11 and add 0.35 Reverse 9165(0.009165) to 109.11 and add 0.35

⇒ ⇒ Interbank Dlr/Yen should be traded at around :Interbank Dlr/Yen should be traded at around :

109.46 level109.46 level

Free URL to see real time CME FX pricesFree URL to see real time CME FX prices


www.cme.com/e-quivalents

Register your name at www.cme.com/e-quivalents to see Real Time Free CME FX prices with Spot Equivalent prices


www.cme.com/fxwww.cme.com/fx


DisclaimersDisclaimers

The information within this presentation has been compiled by Chicago Mercantile Exchange Inc. (CME) for general purposes only. Although every attempt has been made to ensure the accuracy of the information, CME assumes no responsibility for any errors or omissions. Additionally, the contents of this presentation should not be considered investment advice. GLOBEX® and CME® are registered trademarks of Chicago Mercantile Exchange Inc.

Documents

CME ® FX Chicago Mercantile Exchange Inc.® Yoshio Kuno 芝加哥商业交易所驻东京事务所所长 久野喜夫

CME ® FX Chicago Mercantile Exchange Inc.® Yoshio Kuno 芝加哥商业交易所驻东京事务所所长久野喜夫