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Here is a transcript of a recent video on INO TV. The CME Group's managing director, Derek Sammann talks about their new forex e-micro products. See more from Sammann and more CME analyst by signing up at INO TV.
"New CME FX E-Micro Product" - Interview with the CME Group's Derek Sammann
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How do CME Group’s FX products work, who trades them, and why?
"FX over the last couple of years has really emerged into an asset class in and of itself. As the equity markets have been difficult and highly volatile, we found a broader set of customers really 
looking for additional asset classes to trade to try to define trading strategies where they can make money. FX has been a beneficiary of that. So we’re finding that with our FX suite, we’re moving beyond our typical institutional base. But, even amongst that institutional user set, we’re finding people trading the product because we’re seeing more retail influence on the product, and because we have more retail influence in the product, we get to grow our customer base on the institutional side. It’s a very symbiotic relationship and the beautiful thing about our product suite, whether it’s the mini, the micros or the large contracts, is they all settle the exact same way, they’re consistent with each other, and they’re fungible. So, if your a large customer who wants to be able to provide liquidity in a small contract, the risk is fungible across whatever contract you trade. It’s a daily settlement, they all settle with the same price, and the access to the pricing is as it is now... over Globex, through a FCM, or a broker."
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What are the e-micro contracts and how do they differ from your other contracts?
"The e-micro concept is an extension and an addition to our overall product catalog in foreign exchange. Starting with our large contract at 125,000 Euros per contract really aimed at the institutional investors, we move onto our e-mini contract which is half that size. But at 60,500 Euro, that’s still a pretty big contract for a self-directed trader. So the e-micro product is an extension of that to appropriately size that contract spec to the underlying need of the retail customer that we see increasingly emerging across the globe. There is a thriving business in the OTC retail market in Asia, in Europe and in the US, but this rollout of this product is really trying to address the needs of our customers telling us, 'if you had a smaller product you could extend your footprints to the end of this client segment.' So it’s really a function of listening to our customers and adapting our product catalog to serve our customer’s needs."
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What are the benefits of e-micro contracts?
"Our suite of micro products are really appropriately sized and really the beneficial aspects of the products are the investor’s safeguards that you get trading on exchange. When a typical retail trader trades in the cash market, they’re exposed to counter-party risk of that principle counter-party. When you trade on exchange, your counter-party is the CME clearing house that’s back by $8 billion financial safeguards package. Secondly the products are able to be traded alongside our large contracts and with average daily volume in excess of $100 billion a day in our futures pool, what that means is that this is the first time the retail trader trading a small appropriate size contract can benefit from the liquidity of $100 billion a day and be able to size his particular risk in a contract size that benefits from the liquidity of available to him."
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What was the reason behind introducing e-micros now?
"The micro concept really came about as a result of direct coordination and communication with our brokers, our customers, our client base. What they’ve told us is, “we would like to trade your products more than we do.” We would like to have a broader access to a broader customer base, but as part of our engagement process in customer service, we have to go where the customer calls us to. So really the impetus behind the rollout for the micros was to be able to appropriately size a contract spec where we know there is an existing client demand and where those clients are currently being undeserved. The concept of the micro size concept takes the best of our deep liquidity in our overall futures liquidity pool here at CME and applies that in the appropriately sized, bite size chunks. That really is a process of working with our channel partners, our brokers and our customers who simply say, 'I’d like an extension of the product, but one a little more appropriately sized.'"
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Why are you focusing on the retail market with e-micros?
"The retail market in foreign exchange is probably one of the fastest growing segments in our market right now. About three years ago, it was estimated that the turnover in retail FX transaction was about $15 billion per day. Most recently in one of the BIS studies that came out, it was estimated upwards of $65 billion a day. So the growth rate of the segments themselves are really fantastic. What that means is you have an informed community of users, looking for the right products, that is aware of the risk, and need a product that suits their individual needs. We think that by providing an exchanged based solution with the central counter-party functions of our clearing house, and the safeguards for the individual investor, this is the best way to serve this constituent client base."
Derek Sammann
Managing Director, FXP
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