“We are working to generate sufficient liquidity on the platform during the summer, with the intention of having six major liquidity providers before opening up the platform to a wider network,” Collins tells EuromoneyFXNews. SDX already has several thousand customers, that use its derivatives pricing tools, as a potential customer base stretched across the buyside and sell side, including top-tier and second-tier banks.
SuperDerivatives formed a joint venture with retail FX broker, FXCM, late last year to set up the trading platform. It is currently in its beta test phase. Collins says that the SD-FXCM offering will differ from other option trading platforms that have emerged since the Dodd-Frank Act, which stipulated mandatory central clearing and electronic execution on swap execution facilities (SEFs), was passed last summer.
He says that most of the other prospective platforms have tried to recreate the existing OTC market very much on a point-to-point, name-to-name basis. That means that each counterparty will need to have an ISDA agreement in place with who ever they’re talking to. It’s exactly like the existing OTC market, just electronic.
“We took the approach that the best way to operate in an electronic market is “one-to-many.” Where each person requests a price and that request goes out to a number of banks. Anonymity is important in that process,” says Collins.
The platform already has a number of providers already signed up to deal on an anonymous basis, and they have formed agreements with a couple of prime brokers who will clear the transactions. “This is going to provide a change event in the market place – so far this is the only platform that complies with potential SEF legislation,” claims Collins.
The SuperDerivatives-FXCM platform is also hoping to develop liquidity in the option markets of regional currencies too. Some smaller regional banks have approached the regulatory change as an opportunity to gain FX options flow that they currently don’t see. “These types of players are stepping up to make markets in their region, which could be a very interesting change for the marketplace,” argues Collins.
They may not want to take the major banks in eurodollar options, but they may want to play in Nordic currencies, or other emerging currencies, where there’s more chance of attracting customer business, and where they can be just as competitive because they are specialists in their domestic currencies.