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The world of regulated swap execution facilities is set to open up for the FX markets in the coming months, as an army of new multi-dealer option trading platforms starts full operations in preparation for new regulations on the trading of over-the-counter derivatives.
The latest start up to join the fray is Fyshe Horton Finney, a London-based broker, which will launch an FX options platform targeting Asian and European brokers who serve retail and high net worth clients. The firm will use platform technology from FX Bridge Technologies, a vendor selling trading solutions to brokers in the FX and CFD markets.
Fyshe will also offer clients credit solutions, enabling banks and brokers on the platform to access multi-bank liquidity via Citi, which will act as prime broker. Brokers without market making capabilities can use the platform with single or multi-bank pricing, or that of another liquidity provider.
Impending regulatory change means many firms are keen to enter the multi-bank platform market. FX options are treated as swaps by the Dodd-Frank Act, meaning US market participants must migrate options trading to SEC compliant swap execution facilities.
New York-based interdealer broker GFI in February added an options trading platform to its Fenics Professional FX options suite. The firm’s platform, FenicsTrader, offers options on major currency pairs and various other crosses via request for quote architecture from six liquidity providing banks.
In June, Bank of America Merrill Lynch became the sixth bank to join the platform, providing liquidity for 44 pairings. BNP Paribas, Commonwealth Bank of Australia, Credit Suisse, UBS and UniCredit were already market makers on the platform. GFI says trade volumes and notional amounts executed via Fenics are growing, but did not provide trading statistics.
Digital Vega, a start-up UK exchange founded by market veteran Mark Suter, is set to go live shortly. DV has seven market makers committed to its platform, five or six of which are expected to begin offering prices within the next fortnight. The platform will start with options on six currency pairings, Suter tells EuromoneyFXNews, but the system will be scalable and support more contracts based on customer demand and available liquidity.
The start-up has attracted interest from bigger market players, with custody bank State Street and exchange operator Deutsche Börse buying minority stakes in recent weeks.
Others are hoping a choice of execution method will help them gain traction. SurfaceExchange, a Connecticut-based firm run by former Fenics man Evgeni Mitkov, will offer a central limit order book alongside RfQ, with all prices quoted anonymously. The group’s SurfaceWave FX options platform is on-boarding clients and expecting to complete its first trade this week, Mitkov says.
Seven of the top ten largest options market makers are keen to join SurfaceExchange as liquidity providers, Mitkov tells EuromoneyFXNews. The exchange is also hoping to attract interest from the proprietary trading community, Mitkov says, including traditional equity traders looking to profit from heightened EUR/USD volatility.
“We’ll be supporting all major G10 crosses initially,” says Mitkov. “And wherever liquidity shows up from then on.”
Targeting the retail market, spot broker FXCM has teamed up with tech vendor Super Derivatives to create Deal-X, a platform initially offering vanilla options to both firms’ existing client bases. The firm says it hopes this will give it a head start as it expands into exotic options, to be offered on a RfQ basis. They had planned to go live on July 14th. Super Derivatives didn’t have anyone available to comment.