Bats, which also operates stock and options exchanges, said in an August 11 statement that it will acquire Javelin SEF, as it looks to speed up its plans to offer trading of non-deliverable forwards for the foreign exchange market.
Bats did not disclose the terms of the deal, which requires regulatory approval. Javelin will be integrated into Bats Hotspot, the trading venue for the institutional spot FX market it bought for $ 365 million in 2015.
The move is designed to take advantage of provisions set out in Dodd-Frank, an overhaul of US financial regulation in the wake of the financial crisis, under which some market participants will be mandated to trade NDFs on SEFs – trading facilities that are aimed at improving transparency in the swaps market.
NDFs, which unlike standard FX currency forwards do not lead to physical settlement, allow for market participants to hedge against exposure to restricted foreign currencies, including the renminbi. The IMF added the yuan to its basket of reserve currencies back in December 2015, a sign of China’s increasingly important status in financial markets.
In its quarterly review for March 2014, the Bank for International Settlements said turnover in NDFs had increased because of the need for non-residents investing in local currency bonds to hedge their exposures.
The latest BIS survey showed that daily turnover in the contracts was $ 127 billion in 2014, and accounted for 19% of all forward currency trading globally.