FEATURE
Transparency,
flexibility and liquidity - redefining standards in electronic FX options
As the FX industry enters into a new era of electronic trading for FX options, Frances Maguire examines the key role that technology is playing in the provision of new and additional services whilst redefining standards in the way these instruments are traded.
T
here are high hopes that even instruments as complex as FX options can be fully electronically traded, bringing not only greater
convenience to existing users but also attracting new customers. For this reason, both banks and systems providers are investing heavily in smarter trading technology, rich functionality and better integration techniques to smooth the transition to electronic trading for FX options.
FX options has already one multi-bank platform and now front office systems provider, SuperDerivatives (SD), has recently launched an anonymous multi- bank trading platform for bespoke OTC derivatives. As an anonymous platform, with no broker fee using prime brokers for clearing, it could almost be regarded as an ‘exchange’ for OTC products. In its first phase it offers bespoke FX options in major and emerging markets currency pairs and is aimed at transforming the way FX options are traded.
Electronic platforms
Zohar Hod, Vice President, Strategic Sales, at SuperDerivatives says there are currently two types of electronic execution of FX options: exchange-traded, such as the Chicago Mercantile Exchange (CME), and through e-commerce single bank platforms. Both are fairly limited in terms of the strikes and tend to be vanilla options. He says: “Creating a barrier or some kind of variation of a strategy for FX options can be not been done on a single-dealer platform, or on an
44 | january 2012 e-FOREX
exchange. Tis is where the difference between the existing systems and SuperDerivatives starts.”
SuperDerivatives started life as a pricing platform, not as an execution platform, and many banks use SDX to be able to do all their pre-trade analytics, bid and ask pricing, credit checks and back testing, as historical volatilities since 1994 are stored there. Te additional integration of the new trading offering provides the first multi-dealer, anonymous, execution platform that shows ‘the best of the book’ trades. “What has happened is that not just due to regulation, and because FX options are going to be centrally cleared, but also because buy-side users have started using multiple prime brokers and multiple clearing agents, the need for a multi-dealer platform has emerged.”
Te new SD trading platform is anonymous from both sides, both the buyers and the dealers presenting the options’ pricing. Few banks have the technology today to stream FX options’ prices directly from their desks through an API. “What we have enabled is that prices can be both published through an API or entered manually to make markets. Te buy-side is also protected from the fact that the market does not know who you are and what your positions are,” Hod adds.
Cloud offerings
Hod believes that five years down the road the main technological changes to the way FX options are traded will be the ability to use a cloud. “All of our platforms are provided as complete cloud offerings. Tere are no applets to be downloaded, they can all be accessed by logging into the system, remotely, and they are completely provided in a cloud.”
Where once there were security concerns about cloud computing, Hod believes the wider adaptation of cloud-based computing is overcoming this. Te buy-
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