FX Options Platforms Add RFQ Capabilities

Terry Flanagan

Platforms that trade foreign-exchange options are adding request-for-quote capabilities that bring exchange-like features to the derivatives environment.

Tradition-Icap, which operates a voice broker and electronic platform for the trading of FX currency options, is launching its VolCall service, an RFQ service that allows market participants to request and trade over-the-counter (OTC) specific interests electronically with intelligent protection.

“Our belief is that VolCall meets, head on, the ever increasing pressure faced by our clients to reduce their variable costs by lowering the cost of execution for FX options in the interbank arena,” said Terry Benson, group chief operating officer of Tradition-Icap. “VolCall represents a market first that we believe will help to change the way OTC FX options are traded.”

The regulatory environment is increasingly calling for more transparency and efficiency, Benson added. “VolCall meets this challenge and brings the solution to market.”

Separately, Dion Global Solutions has launched an automated RFQ system for the OTC FX options market. By providing consistent and transparent pricing of FX options and allowing users to issue and respond rapidly to RFQs, the new module dramatically reduces the time taken to place, price and execute an order.

Previously manual processes and relationships have been transformed into an automated RFQ network which delivers significant efficiency savings while facilitating compliance with global regulatory demands for transparency and auditability.

“The CFTC and the EU have made it clear that compliant trading of FX options is dependent on technology,” said Rob Gray, head of European sales for Dion Global Solutions’ dfferentia, a multi-asset class pricing, valuation and risk management system for OTC derivatives. “Firms face three underlying requirements: accurate pricing and valuations; efficient risk and portfolio management; and support for effective price discovery both for single trades and whole books of options.”

Aside from regulatory concerns, market participants should be positioning themselves to take advantage of an upswing in the markets. “We are already seeing an increase in volumes, and forward-looking businesses are ensuring they have the ability to scale operations to meet growth demands,” Gray said. “We believe that electronic trading has become an imperative in FX options and that it can be done at a sensible price point. The time is ripe for a fully automated sophisticated yet user-friendly RFQ system.”

VolCall comprises a 5-minute price-making phase where market makers enter two way prices; these will be collated and ranked by level rather than time entered. Provided the price made meets the qualifying width, the market maker will enter a 2-minute period of adjustment. In this phase the market maker will see the positioning of their price in relation to the best two way price and may adjust their price accordingly.

In the final 30-second deal phase, the interest will be shown the best aggregated price, with all liquidity available at that rate (even if it exceeds their requested amount) to make an informed decision to trade, counter or decline.

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