FEATURE
Suter says: “What we are building, and delivering now, is a workflow solution. Until now a lot of the large asset managers have used existing order management systems linked to lenders to trade spot, we are now doing the same thing with options. We will integrate with their existing order management systems to give them the facility to trade FX options.”
Much of the current focus is on the vanilla products and structures, as that is where there is greater volume, and Suter believes the arrival of the electronic FX options platforms has brought greater transparency and more liquidity to these instruments. As it is much quicker and easier to execute, volumes will hopefully increase and as result options are turning into a flow business – with the bigger banks building systems to manage this flow. Drilling down into the more exotic structures is going to be harder and less appealing to automate due to the greater levels of customisation and negotiation needed.
Mark Suter “Because this is a relationship-based system,
we have always said there will be a differentiation between bank providers and customers. Others have tried using an anonymous model but the banks don’t seem to want to support this.”
technology being deployed as is much quicker and more stable than the technology in use when other asset classes went electronic.
Suter says: “Because this is a relationship-based system, we have always said there will be a differentiation between bank providers and customers. Others have tried using an anonymous model but the banks don’t seem to want to support this.”
Order management
For Suter, the move to electronic trading in FX options is just as much about connectivity, STP and reporting as it is about execution, particularly in the real money sector where Digital Vega has worked with a couple of large real money accounts to build a complete order management system for FX options, using a range of different execution methodologies, from an automated black box pricing system or from a range of portfolio managers to an execution desk, and delivering completed trades to custodians. Digital Vega is also fully integrated into the Traiana Harmony network and supports multiple prime brokers, with full STP capability.
48 | july 2012 e-FOREX
While the FX options industry is still waiting for final details from the regulators, Suter says that what is creating one of the biggest blocks is that no one knows how much this going to cost. He says: “A lot of the institutional investors we have spoken to have told us they understand the new regulatory requirements but no one has told them how much it is going to cost, in terms of clearing fees and the all-in cost of executing in this business. Until the industry knows how it is going to work and when it is going to work they don’t want to invest more.”
Multi-dealer-to-client
Earlier this year, multi-dealer fixed income and derivatives trading platform, Tradeweb, entered the FX options race launching trading in options contracts across 10 currencies, on a request-for-quote basis. Tradeweb too will apply to become a SEF in the US and will conform to any trade reporting mandates accordingly.
Adriano Pace, director of equity and FX derivatives at Tradeweb, says that Tradeweb believes FX options will follow the same route as fixed income and equity derivatives in the move to electronic trading. He says: “In fact, FX options are probably more advanced than other asset classes in terms of electronic trading because of single dealer platforms, but the more recent trend has been towards aggregating prices in the same venue and that is where we have come in.”
While there is no doubt that there is a regulatory drive at the moment towards electronic dealing, where some
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