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CME’s expansion will extend to weekly FX options – Industry roundup: 22 November

CME to offer weekly FX options from 5 December

Derivatives exchange CME Group will launch weekly foreign exchange options contracts that expire on Tuesdays and Thursdays from next month, allowing traders to hedge volatility around specific market events, reports

The new contracts – for G5 currencies – will be available on both CME’s electronic central limit order book (Clob) and off screen via bilateral block trades, from 5 December. The move expands the exchange’s existing weekly FX options contracts that expire every Monday, Wednesday and Friday, giving traders the flexibility. CME hopes to capture massive demand from the sector, the report adds

The launch further extends CME’s portfolio of products and services. At the end of October the exchange added trading in a new suite of overnight index futures based on the Euro Short-Term Rate (€STR).

€STR futures provide an efficient way to hedge European money market rates, with contracts including €STR 3-month futures and €STR 3-month single contract basis spread futures, complemented with €STR vs Secured Overnight Financing Rate (SOFR) inter-commodity spreads. These contracts enable granular price discovery across the forward curve, Interbank Offered Rate (IBOR)/Overnight Index Swap (OIS) basis trading, as well as managing cross-country basis spreads and price differentials between the EU and US interest rates.

CME Group’s Volatility Indexes (CVOL) offer a view on volatility across treasuries, currencies and commodities and reflect the fact that there is no longer a “one-size-fits-all” volatility measure, which has been increasingly apparent in the extreme market circumstances of the past two years.

CVOL indexes in treasuries, grains and crude oil have reflected sudden market changes from events such as the Federal Reserve’s recent policy to contain inflation, the war in Ukraine and Covid-19 lockdowns in China.

Traders have welcomed CVOL as a valuable tool for gauging varying degrees of volatility across different markets and asset classes, such as energy and treasuries.

In early August 2022 the indices began streaming in real time via CME Direct and on the CME Group website – delayed 15 minutes. This allows traders to measure market expectations and also track market responses to certain pivotal events as they occur, including Federal Open Market Committee (FOMC) meetings, Consumer Price Index (CPI) data releases, Organisation of the Petroleum Exporting Countries (OPEC) meetings, World Agricultural Supply and demand Estimates (WASDE) reports and other market-moving events.

UK and South Africa launch joint infrastructure partnership

The UK and South Africa will join forces to “turbocharge infrastructure investment and economic growth together”, says British prime minister Rishi Sunak.

The next phase of the UK-South Africa Infrastructure Partnership is launched today to coincide with a two-day state visit to the UK by South Africa’s president Cyril Ramaphosa. It will support South Africa’s economic growth through major infrastructure developments and offering increased access to UK companies to projects worth up to £5.37 billion (US$6.38 billion) over the next three years, said an announcement by the UK government.

Mr Sunak said: “South Africa is already the UK’s biggest trading partner on the continent, and we have ambitious plans to turbocharge infrastructure investment and economic growth together.

“I look forward to welcoming President Ramaphosa to London this week to discuss how we can deepen the partnership between our two great nations and capitalise on shared opportunities, from trade and tourism and security and defence.”

A separate government statement announced: “The UK government will also confirm new grant-funded technical assistance to South Africa to help unlock green hydrogen opportunities and boost skills in this key sector.

“As an example of the opportunities for UK businesses, Globeleq - a UK company that is majority owned by British International Investment – is today announcing they have reached legal close on six solar power projects, with construction expected to kick off in South Africa next year.”

South Africa is the continent's second largest economy and is already the UK's biggest trading partner in Africa, with trade worth £10.7 billion annually. Unlocking export finance offers significant opportunities for British businesses to invest and trade.

Cellnex says inflation has closed European phone masts market

Europe’s mobile phone towers market is “pretty much closed” as rising inflation takes hold across the region according to Tobias Martinez Gimeno, chief executive officer at the Spain-based operator Cellnex.

Gimeno told the Financial Times that resurgent inflation makes it harder for companies to finance new deals while simultaneously the availability of assets declines. There have been several tower deals taking place in Europe in recent months, but this is slowly coming to an end according to the CEO. “M&A activity is over. Material, inorganic growth for the next 24 months is over,” he said.

Earlier this month Cellnex said that its near-term priority is to improve its credit rating to investment grade from agency Standard & Poor’s (S&P), which will adopting a “more conservative financial risk profile rather than seek further expansion. In October the company agreed to sell 1,100 sites in the UK to Wireless Infrastructure Group (WIG) as part of its plans to buy 6,000 passive infrastructure sites from CK Hutchinson for US$4 billion.

Despite the impact of inflation, Cellnex revealed earlier this year that it had hoped to own around 137,000 towers by 2030, but Gimeno told the FT that further deals are not on the company’s agenda. “Cellnex will focus its attention on reducing debt and limiting capital expenditure, among other things,” Gimeno added.

The change of policy was evident in July, when Cellnex dropped out of the bidding for Deutsche Telekom’s towers unit, which went to Brookfield Asset Management and DigitalBridge Group. The company already owns towers with Deutsche Telekom in Switzerland, the Netherlands and Germany and claims to own around 53,000 tower sites across Europe.

India lines up retail CBDC pilot

India’s central bank will follow its recent launch of a pilot wholesale central bank digital currency (CBDC) – reported by Industry Updates on 1 November – with a retail version next month

The Economic Times of India (ETI) reported last weekend that the Reserve Bank of India (RBI) is finalising the rollout of the retail digital rupee pilot. The RBI launched the wholesale central CBDC pilot on 1 November to test its usage in settling transactions in government securities and said that the retail digital rupee pilot would be launched within a month.

According to the ETI report, the digital rupee is meant to complement, rather than replace, existing payment methods. Additionally, the report noted that the retail CBDC had been designed to be interoperable with current payment systems, citing insider sources familiar.

The report noted that the CBDC platform will be hosted by the National Payments Corporation of India (NPCI) and will be similar to the NPCI’s unified payments interface (UPI) system.

UPI has become a popular payment method in India, enabling users to instantly transfer funds directly to and from bank accounts through a UPI address. The UPI addresses, similar to email addresses, are linked to the bank accounts.

An anonymous source with knowledge of the project told ETI: “Just like we have a common library for UPI, the technology for CBDC is similar to that and it is being hosted by NPCI, it will be interoperable with the current payment platforms.

“The e-rupee will be stored in a wallet, the denominations will be available as per the customer’s request, just like you request cash from an ATM. Banks are launching this only in select cities.”

Banks participating in the retail CBDC pilot include State Bank of India, Bank of Baroda, ICICI Bank, Union Bank of India, HDFC Bank, Kotak Mahindra Bank, Yes Bank, and IDFC First Bank. The RBI wants each bank participant to test the retail CBDC among 10,000 to 50,000 users, per the ETI report, which adds that the CBDC project will eventually be extended to the entire banking system.

Banks participating in the CBDC trial have partnered with last-mile payment service providers, including PayNearby and Bankit, to enable users to pay merchants with the digital rupee.

The retail CBDC will be provided as a standalone product in the initial phase. However, the digital rupee will eventually be integrated with existing mobile and internet banking services.

Merchants and customers selected to participate in the pilot will be asked to download a wallet application, which will be used to store the e-rupee, as per the report. Users will also need to request specific denominations of the e-rupee from their banks, which will be transferred to their CBDC wallet.

Fintech Stenn aims to close SME trade finance gap

Stenn, a start-up fintech that says it is “democratising access” to capital for SMEs internationally, has been extensively profiled in the Financial Times.

The business daily notes that the need for trade finance remains pressing. According to the World Bank, the gap in international trade credit amounts to US$3 trillion and is widening. A. report by consultants Accenture, commissioned by Stenn, estimates the demand for trade finance will increase to US$6.1 trillion in the next four years.

But the provision of finance to smaller businesses is lagging; a problem exacerbated by the 2008 global financial crisis when large banks pulled back from lending more broadly.

Stenn says is working to address this issue. It aims to connect small and medium-sized businesses around the world to developed capital markets. Through its proprietary technology, Stenn can process applications for trade finance in only 48 hours, in more than 70 countries.

The company, set up by Greg Karpovsky in 2015, is backed by large global financial institutions, including HSBC and Barclays, but focuses on businesses in need of financing and trade credit protection in the range of US$10,000 to US$10 million. To date, Stenn has facilitated around US$10 billion of financing in total, the FT reports.

While it provides a range of financing options, Stenn’s bread and butter is invoice finance: advancing payments to suppliers immediately and collecting from their customers later, in return for a fee. Its service enables suppliers to be paid as soon as their goods are shipped, while allowing the buyers to receive their products and generate revenue from them before they need to settle the bill.

Without invoice finance, suppliers could end up waiting months for payment when they export goods to buyers overseas, which can harm their cash flow and growth.

In return, Stenn takes a fee from the supplier of between 0.65% and 4% of the invoice value and also takes on the risk of a buyer defaulting.

Karpovsky has ambitious growth targets for Stenn. “We will plan new equity rounds, but we’re in a very good position at the moment. We’re profitable, which is almost unique for a young tech company,” he says. “We are planning to grow about 30 times in the next four-five years.”

Finzly launches a treasury management super app

US software company Finzly has launched a treasury management super app that it says can manage accounts, payments, and global treasury needs of business customers.

The Finzly Experience Hub was designed to embed directly into banks’ existing digital platforms in order to provide global transaction banking to business, commercial, and corporate clients. This new treasure management super app is an alternative to conventional one-size-fits-all business banking platforms that drive users to toggle between different spreadsheets, cash, and treasury management solutions from multiple providers.

To address this issue, the Experience Hub embeds several business banking apps within one super app platform. This allows banks to curate banking services according to the needs of individual businesses. The solution offers small- to medium-sized businesses (SMBs), commercial and corporate customers the opportunity to manage all their accounts, payments, beneficiaries, and authorisations through a self-service portal. 

Using this system, business customers can initiate domestic (ACH, Fedwire, RTP & FedNow) and international payments with real-time email notifications to approvers, manage users and their privileges, as well as manage bulk payments. The super app also incorporates fraud prevention features such as Positive Pay. FX trading is supported, enabling clients to buy and sell currency and use multi-currency accounts to manage their global treasury.

Morgan Stanley launches environment-focused PE platform

Morgan Stanley Investment Management (MSIM) is launching the 1GT growth-oriented private equity (PE) platform focused on companies aiming to mitigate climate change.

The platform will focus on companies that cooperatively “avoid or remove” one gigaton of Carbon dioxide-equivalent emissions from the earth’s atmosphere by 2050 to help achieve Net Zero targets.

1GT is a part of MIMS’s US$200 billion alternative investments business targeting companies mainly based in North America and Europe, the investment firm said.

Vikram Raju, MSIM’s head of climate investing and the 1GT Platform, said: “As COP27 concludes, it is clear now more than ever that we need to radically alter the traditional model of private equity impact investing in three ways.”

He outlined these as firstly the need to accomplish climate goals that are “tangible” rather than “anecdotal and ambitious rather than tangential”.

Secondly, to assist significant improvement in climate solutions, a substantial proportion of financial incentives should be linked to such environmental objectives. Thirdly, the measurement of climate goals should be “transparent to limited partners”.

1Gt will target investments in private companies that provide “measurable positive environmental impact across the mobility, power, sustainable food and agriculture, and circular economy themes”.

Anti- Money Laundering “will be US$7.7 billion market by 2030”

A new report issued by Polaris Market Research analyses the anti-money laundering (AML) market share, size, and predicted trends over the 2020s.

Polaris expects the AML market size to reach US$7.7 billion by 2030. In 2021, the global anti-money laundering market was valued at US$2.10 billion, and the report suggests that it will grow at a compound annual growth rate (CAGR) of 15.5% during the forecast period. 

One of the main factors fuelling this growth is the global increase in money laundering cases, which is influenced by the rising use of virtual currencies and the increasing accessibility of the internet.

As companies face regulatory punishments and even brand damage from non-compliance with AML rules, the market stands to expand even further. However, two factors that could impede its growth are represented by the lack of highly knowledgeable AML specialists and the lack of awareness of governmental requirements.

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