Eugene Markman and Paul Houston
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Ali Curi: Markets ConversatION is an ION podcast where we discuss topics of importance to capital market participants with product owners, subject matter experts, and industry leaders. 

Hi everyone and welcome to Markets Conversation. I'm Ali Curi. 

On today's episode, Eugene Markman from ION Markets and our special guest, Paul Houston from the CME group, will discuss some trends and innovations at CME that will impact the future of foreign exchange markets. 

Let's get started. 

Eugene Markman, welcome back to the podcast.

Eugene Markman: Thanks, Ali. Always great to be back. 

Ali Curi: And joining us today is our special guest, Paul Houston, Global Head of FX Products at the CME Group. Welcome. 

Paul Houston: Thanks, Ali. And thanks for having me. 

Ali Curi: We're glad you're here. Eugene, you're a regular on the podcast, but for our new listeners, can you briefly share with us your background and your role at ION?

Eugene Markman: Yes, of course. I came to ION as most people did by way of acquisition. I was working at a company called Market Factory, which we founded to provide FX connectivity. We were acquired in 2019. After acquisition, now I'm the COO for our FX product suite. 

Ali Curi: Thanks, Eugene. I'll hand things over to you so you can take us through today's conversation.

Eugene Markman: Thanks, Ali and Paul, thanks for joining us. We've been quite excited about having this show and we're really happy to have you on. So maybe to start off, could you tell us a little bit about your current role as a Global Head of FX Products at CME? 

Paul Houston: Yeah, of course, the current role involves running the FX businesses at CME, so that can involve a multitude of things, ranging from the day-to-day running of the business, product and business development, sales, speaking to existing customers, but also new customers, and then research and performance analysis.

About a year ago, we had two FX businesses, one on the cash side, one on the FX future side. And last year we merged the two. So a lot of this year has actually been focused on bringing the two businesses together across cash and futures and streamlining experiences with our customer base, but also how we operate internally.

Eugene Markman: You're really wearing many hats over there. What do you think your focus on will be next? 

Paul Houston: There's been a lot of focus this year. Now we've migrated our cash platform to our futures technology. A lot of focus on product development. So product development, new products, but enhancing existing marketplaces.

So that has been a huge focus. You know, we have been launching products already this year and we have a few exciting initiatives planned for later this year and early next. 

Eugene Markman: I do want to talk about that. Maybe we'll go on that in that direction a little bit later, but one thing I did notice was that we crossed paths at Credit Suisse, I believe about 10 to 15 years ago, you were there as well.

Maybe we give it a little bit of your history before you joined the CME. What did you do? How did you end up with the CME? 

Paul Houston: Yeah, I've been around a few banks largely working at FX. I started a bank called RBS, NatWest Markets, working in risk management, e commerce or eFX, and then spent a lot of my career actually setting up prime brokerage businesses. It was the early days of electronic FX trading, the early days of prime brokerage. So worked at NatWest Markets JP Morgan, Credit Swiss, and latterly Deutsche Bank. I joined the CME in 2016. I decided I wanted something new and I was attracted by running a business, but also running a large business or a large platform in a dynamic marketplace. 

Eugene Markman: I'm surprised we didn't cross paths at Credit Suisse. I myself, I wasn't on the FX side. I worked in rates products. So I was in New York and spent some time out in Zurich on this econment for about two years. But we did have some interaction with the PB side of the business, though, not too much.

One of the things I wanted to ask. So obviously while you were at CME, you had the merger with EBS. Yeah, that was large acquisition. What was that like for you? And how did that shape your approach to FX markets now as a unified CME? 

Paul Houston: Overall, it was a great experience. Sometimes during the moment, it was stressful, demanding, as you can imagine, and also enjoyable.

I think the culmination of it, and it took some time and we CME acquired NEX, which EBS was part of in 2018. And we went through COVID, as you know, so we completed a major technological integration by moving the whole EBS platform, all of the customers over to CME Globex. And that was a major undertaking, big kudos to all involved, all the original EBS staff who largely drove it, all the CME technology staff.

But also importantly, all the customers, it wasn't without its teething trouble, but it was largely for such a major undertake, it largely went seamlessly, it largely went very efficiently. What it's taught me is the, you know, the FX market is hugely complex and streamlined solutions are critically important for customers to navigate that complexity and that fragmentation.

Eugene Markman: So we sympathize, obviously. We have seven assets, seven different companies that within ION FX that we are looking to bring together. And as we've got, we're in various stages of integration. It's difficult. It's tedious. It's exciting though. But what I wanted to ask you as far as the migration of the old EBS platform onto Globex, what did you learn from that migration? We worked closely with the team, obviously providing CME to our clients as we currently do. But curious from your point of view, what are the lessons that were learned? 

Paul Houston: It was important to work with all, might be an obvious point, but it was important to work with all elements of the ecosystem.

So vendors, customers, internal, to make sure no stone was left unturned. It was important not to only migrate the status quo, but to try and improve things along the way. So we did make a number of improvements. We made the market more deterministic and then some of the features didn't make it across the migration.

So it was important to listen to our customers. Which features were important and which features could perhaps follow as a day two. 

Eugene Markman: Thanks for that Paul. So what one question that I've often asked folks at CME and EBS is, after the migration did you see a change into how your clients interacted with the product?

Was there a change in clients, did new clients come on board or did the move to Globex incentivized new clients to join? And did any of the clients that were previously in EBS decide not to migrate? 

Paul Houston: Yeah, there was certainly over time, the initial aim was to get the clients over as many as possible. There was some naturally, there was some client attrition where customers who didn't trade frequently on EBS didn't come across.

That was very few or very minimal. Once the migration was completed, we have increased the client footprint on EBS. We have a promising footprint or onboarding pipeline now, but the natural first wave of customers were those that actually use futures or actually were connected to Globex and they came across using that platform and that connectivity fairly easily.

And as part of their initiative to move into the OTC marketplace. So, as I mentioned, now we're focused on using that streamlined platform to bring on more customers. 

Eugene Markman: I could see that on our side, the clients that were first movers for us, and they were really driving us to code to the new Globex APIs, where our customers were more advanced and to use futures as well.

I mean, overall, I just generally see a trend where clients are now more reliant on CME futures data in addition to Spot data as well, both on the hedge fund side, but also on the dealer side for their price construction. 

Paul Houston: No, absolutely. We see them as complimentary to one another. And that's one of the reasons it makes sense having a two FX business to make them one, but it's one of the reasons why we've brought the business together to seek value out of both together.

Eugene Markman: With the acquisition and the migration to Globex behind us, what are some things that you're interested in focusing on for the remainder of 2024, anything that stands out for you or surprising that has happened this year as well? 

Paul Houston: Broadly speaking in the FX market, we still see a number of new entrants, a number of new platforms.

It's a heavily fragmented marketplace. But a lot of new platforms, a lot of new initiatives has brought efficiency. I'll go back to my complexity point earlier that navigating all the different execution modes, all the different platforms, all the different data sources can be quite daunting for some customers.

So we are focused on offering as much valuable products on one platform in a streamlined way. So that's important to us. And we've actually, now we've had the platform on a EBS platform onto Globex. We now have been rolling out a number of changes to our marketplace. There's changes around market data, changes around market ecology.

So the rules of the market, like minimum quote life, the latency floor, but also some new order types. And that rollout has happened sequentially because as you're well aware, when you're making changes to such a delicate ecosystem, you don't want to disrupt it. So we've been very deliberate in that approach.

Eugene Markman: Yeah, it's interesting that you say that you're still seeing fragmentation. Our thesis, even from the Market Factory days is that there's always more fragmentation in FX. I think that fragmentation changed a little bit, right? Where it's not necessarily that you have more entrants, there still are new technology vendors that are new entrance into the space, but I think there's now fragmentation within companies, right?

So somebody like a Hotspot, a 360T, right? Even I guess CME has worked the other direction, but they're putting out more liquidity pools, more products, all with different APIs, all with different technology. And it's kind of fragmenting in another dimension, as opposed to in the beginning where it was just another new ECN, new ECN, new ECN, and so on. 

Paul Houston: I agree. I think there's been I mentioned there's been a lot of innovation. It's been good for the marketplace. We as owners and providers of EBS as a primary market we support fragmentation for its efficiency, but often when there's large moves and large volatility in the market, they do come back to the primary markets.

And we've seen that with the recent move in dollar, yen and associated currencies, and also being a primary market, there is improvements that can be made and we've made those improvements, but also it's very hard to deliver markets within markets. Our standard is having an open and transparent central marketplace.

So we welcome innovation, but within that marketplace, we have a particular role, if that makes sense. 

Eugene Markman: So let me ask you this, if we're looking forward, if we're thinking about next year, what innovation excites you? What are you keeping your eye on? 

Paul Houston: You mean more broadly in the FX market as opposed to what we're doing at CME?

Eugene Markman: Yeah, broadly in the FX market. 

Paul Houston: I think in the FX market, further automation around non spot products. So I'm thinking around swaps, FX options. I think there's some exciting developments there. We're working on certain initiatives, but I'm sure that the broader market are as well. I think maybe not one for 2025, but what excites me is the ability to disrupt workflows in FX.

So how do we look at blockchain? How do we look at digitization? How do we look at settlement processes? I don't think there's a, an obvious answer out there, but there will be an answer. I'm not sure 2025 is the date and then more generally, I wouldn't say excites me, but I think an important dynamic is the changing bank capital rules around SACCR, which can change the playing field in FX when they're harmonized and rolled out.

And can make certain pockets of FX more costly and then in turn as we've seen in FX markets stimulate more innovation and more ways to optimize. 

Eugene Markman: I think I agree with you. Now I think the further automation beyond Spot, I think Spot were fairly advanced, but I think a lot of this will be driven, we went to T+1 this year, sooner or later, there's going to be a target date for T+0. I think the way to get to T+0 or a way to get to T+0 is going to be through digitalization, but the other part of it is going to be automation. 'Cause you have to automate, I mean, you can't do things manually, but what I wonder though, is how much AI technology will be driving some of these changes or facilitating some of the changes, make it possible to automate more. It might not come around next year, but I think next year will be the start of those conversations and thinking about how to incorporate those products. 

Paul Houston: I completely agree. I think it's, there's a bit of a runway before it impacts the FX market, digitization and AI, but I completely agree there are emergent technologies, which has the potential to disrupt how we operate in the marketplace. 

Eugene Markman: I noticed that you're also going to be at TradeTech next week in Amsterdam. Any panels that excite you? 

Paul Houston: It's a great conference, opportunity to meet a lot of people in the marketplace. I think a lot of the panels around digitization, some of the capital panels, some of the panels about non spot products I'll be interested in.

A colleague is on a panel around market impact and optimizing execution, which I have to shout out, which I'm excited about, but I think it looks like a good, strong agenda. 

Eugene Markman: The two panels that I have marked off, I'm speaking on one, which is a workflow automation, the two that I have marked off. And hopefully you'll join me for that, come to my panel. One is going to be digital assets, which is the next generation trading desk. So excited about that one. And the other one is algos and liquidity, so the liquidity panels we hear every year, those aren't changed much, but I do want to know how algos are evolving.

I think that's another area within FX, another product to cohort, that is going to be growing, right? Especially as algos start moving away from spot and algo start driving that automation in the non spot market, your swaps options it's already started in the NDFs, right? But that's the beginning into the non spot market for me.

Paul Houston: Yeah, no, absolutely. I'll certainly attend your panels. I agree. Some of the non spot products behind, we've seen some new entrants in NDF, seen a lot of development and electronification in that marketplace. We're also starting to see some algo trading in products like swaps, and we have a product called FX Link where banks have automated and market making strategies are now cutting their teeth in that product along with other swap platforms. So I agree it's exciting space to see how that develops. 

Eugene Markman: Maybe we go back and focus on the CME again. So I understand there's a major innovation that you're looking to introduce later this year, which is Spot+. Perhaps you could tell us about that product.

Paul Houston: Yeah, of course. So Spot+, I hope you like the name. It's a new spot platform. It's a new spot marketplace, but there's a plus element is it's very much linked to Futures and Link, FX Link. The marketplace will be set up adjacent to FX Link and FX Futures, it will allow FX Futures liquidity to be represented in OTC spot form and convention, but it also will allow participants in the Spot+ marketplace to place bids and offers in OTC spot convention, and that to be represented in the FX Futures order book. So we use a technology called Implication on Globex is commonly used in rates markets, as you probably know, we're transforming that or translating that for the FX marketplace.

Eugene Markman: This is going to be available to the current Globex client base. It's both on the future side and the cash side?

Paul Houston: Yeah, it'll be available to the current Globex customer base. It will be available to the current customer base, both the traditional futures customer base and EBS customer base, and also any new customers that will wish to join the marketplace.

It's worth pointing out for EBS customers. And this is part of the value for us, many of the regional banks and banks on EBS want more products. They don't necessarily want to trade or can't trade futures. It will be available on the same connectivity or on the same workstation and the same legal entity for that customer base, but naturally, we're looking to make it available to all of our customers. 

Eugene Markman: Interesting. So why now? All right. What led you to develop this in 2024? 

Paul Houston: Yeah, I think a few things we completed our migration in 2022. We bet down some of the issues we're now through the other end we're now in the ability to innovate across both our futures and our cash platform.

We have our futures are largely quarterly contracts. Our FX Link product is the spread or the basis between that quarterly contract and spot. Both marketplaces have grown considerably. So Futures and Link are both our fastest growing marketplaces across our FX product suite. And FX Link is a position where we feel like expanding that network.

So linking that Futures marketplace to a Spot marketplace would be additive to our customers. And of course, that's not just based on a hunch. We've spoken to 40-50 banks when we validated this. Several hedge funds, several non-bank market makers. So it's validated extensively. So I think that's the "why now" we're in a position to build it and innovate, but also we see the demand both from our existing customers and also from new customers to access futures liquidity and spot form, but also to interact with futures liquidity as a market maker. 

Eugene Markman: We mentioned this a little bit earlier, though, that we're seeing just more demand, especially from dealers, from futures market data using that for the core price construction, is Spot+ going to be additive to that, or will that be more of a substitution for them?

Paul Houston: Um, it can be additive and a substitution. Spot+ will show CME, a CME Spot+ rate, which is based on a unbiased spread generated from FX Link marketplace, but also from the futures marketplace. Some banks may still prefer to access that futures data directly, but we will be offering our customers the Spot+ market data, along with their futures feed, but also along with their EBS market data. 

Eugene Markman: So obviously we're quite excited about this product and we're excited to support it. We think our clients will definitely benefit from it. What is the timeline for the product release? 

Paul Houston: We're speaking to customers now we have the specs, we have the commercials, it will actually go into "new release" in CME parlance for testing in November.

So early November, and then the launch date is Q1, 2025 specifically it'd be late Q1. So we're aiming for early March. But I think that new release, that testing process is important because obviously our aim is to get as many customers familiarizing themselves with the marketplace, familiarize themselves with the market data and the way implication works during that new release to, to go live. So it'd be a next year go live, but certainly available for testing this year. 

Eugene Markman: Well, we're looking to be ready to support it by Q4 for our clients, but if our clients ask and they want to get more information, what should we tell them? 

Paul Houston: Tell them to come to me or to the CME FX Team in all seriousness, we can provide them with a lot of information.

We have onboarding initiatives, incentives for early adopters. It's in our interest to establish a network on day one. So we're open to speak to customers for sure. 

Eugene Markman: That's very exciting. Thank you so much for sharing all of it. Sounds like the CME Group has a lot going on in the FX space.

So we'll be keeping an eye out on what you guys are up to in the upcoming months. 

Ali, I'll hand it back to you. 

Paul Houston: Great. Thanks. 

Ali Curi: Great gentlemen. Thank you. Eugene Markman. Thank you for hosting today. I look forward to seeing you on another episode soon. 

Eugene Markman: Thanks, Ali. It's always great to join you.

Ali Curi: And Paul Houston, thank you for joining us. I hope you'll visit us again. 

Paul Houston: Great. Thanks. It's a pleasure. 

Ali Curi: And that's our episode for today. You can follow ION Markets on X and on LinkedIn. Thank you for joining us.