FX Options – enhancing the pricing and execution experience of electronic platforms >>>
instruments will not only be mandated to clear but to trade electronically on Swap Execution Facilities, Pace believes there was a natural move towards electronic dealing platforms anyway.
He says: “Te larger dealers are aware of this and they need to have a strategy which is consistent with a multi-dealer environment. FX options are already traded electronically because of the streamed prices coming in from single dealer platforms, and due to client demand Tradeweb has built a multi-dealer platform.”
Some of the improvements on the FX options platform are generic to Tradeweb, by taking features from other marketplaces and mapping and adjusting them for FX options. Pace says: “One of the big attractions for clients on Tradeweb is the collection, the aggregation and the simultaneous display of dealer prices on one venue. With FX options, there is a proliferation of single dealer platforms, with quick pricing and streaming of quotes, but only for one dealer at a time. We have linked up electronically
to a number of liquidity providers so that a client can choose several dealers at one time and get simultaneous bid and offers on one screen. Tis makes the comparison of quotes much easier, and with that there’s an audit trail.”
Single dealer platforms have been built for speed, Pace admits, but for a client asking five specific dealers for quotes would be slower than sending one enquiry on Tradeweb to those five dealers, which would take a couple of seconds. Furthermore bespoke tickets can be created on Tradeweb to go direct to the dealers, and prices are updated automatically by streaming quotes coming in from the market makers. Tis, says Pace, greatly reduces the scope for errors compared to having to upload a request to several platforms or communicating by phone with traders.
Te complete lifecycle has been automated, end-to- end, similar to equity derivatives and fixed income. Pace says: “In the optimal trade a client will upload a ticket electronically, it flows through to the dealers, which respond within a split second with prices, the client trades on the best quote and the trade is allocated on the
platform.Nothing is needed to be done off-platform. Te dealer can also embed credit limit criteria, pre-trade, so the request already takes this into account and if a dealer cannot satisfy a particular size it will automatically pass on the request rather than trading, conditional on a credit check.”
Transparency and full disclosure upfront is a key prong in the Tradeweb offering, Pace adds. Te moment a request is sent, the client knows who the dealers are and the dealers know who the client is. “Tis is very important as it in some ways the platform self-polices itself because it is not anonymous. It also means that the dealer can tier its pricing, once the request comes in, according to who the client is.”
“Enquiries on Tradeweb can be bespoke in nature. It is not just a case of picking a currency pair and a strike. Tradeweb has created a capacity for multi-leg strategies – call spreads, put spreads, risk reversals etc.”
Adriano Pace
“..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.”
Te platform is part of Tradeweb’s European fully regulated MTF and is set up as a multi-dealer-to-client platform. Pace says that a client has to be enabled by the dealer, and the only way a client can face a dealer is if the dealer has gone through a processing of checking documentation and approving that client. Tis generates a clear dealer community that is only
july 2012 e-FOREX | 49
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