The company, which as far back as 2005 had attempted to start up an MDP options marketplace, now joins a growing number of FX option platforms that have been established over the last 18 months in preparation for the impending global regulations that mandate central counterparty clearing and MDP execution. FXall’s chief executive office, Phil Weisberg, says what sets it apart from others is that it is part of a larger product suite. “We’ve taken the electronic side of the market further than anybody I know of, and the way we’ve done it is by fully integrating the product with rest of our suite,” says Weisberg.
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| “We’ve taken the electronic side of the market further than anybody I know of, and the way we’ve done it is by fully integrating the product with rest of our suite,” Phil Weisberg, CEO FXall |
That said, FXall made the decision to launch the offering this week after processing its first trades last Friday with just two market makers, Credit Suisse and Bank of America Merrill Lynch. The two were ranked 6th and 9th in the Euromoney 2012 FX survey for options, representing about 12% of global option volumes.
This begged the question as to why the leading liquidity providers hadn’t agreed to become so at the outset, thus ensuring that the platform would have broad liquidity from the off. Weisberg remains relaxed about this, saying other banks will start providing streaming prices in the near future.
“We made the call to go when we had a couple of banks who were ready to rock and roll, and the other folks were moving closely behind them,” Weisberg says. “We have already got eight dealers on the post-trade confirmation matching and settlement side, and there are a lot more in the harbour who are in the process of integrating.”
Some liquidity providers that EuromoneyFXNews spoke to in recent days say they are taking a wait-and-see approach before committing liquidity to FXall. Other earlier entrants, such as Digital Vega, founded by Mark Suter, now have 11 market makers streaming prices to its platform, Mudusa. Other platforms such as Super Derivatives/FXCM, Tradeweb and SurfacExchange also claim to have attracted support from leading liquidity providers.
“We go where our clients are, so if our clients want to trade with us through a wide range of platforms then we will be there for them, providing a service and making prices for them," says Joerg Schmucker, head of e-commerce options trading at Credit Suisse.
The Swiss bank says that while there are more clients actively pushing for price streaming onto MDPs, other clients still prefer voice broking and talking to a salesperson.
"It's horses for courses depending on which clients you're looking at. FXall has a lot of corporate clients which already trade spot, so this is a way for us to reach out to them more efficiently.”
Weisberg argues that FXall’s offering has better medium-term prospects than competitors due to its wider product range.
“I don’t know whether or not the stand alone systems will generate enough revenue to overcome their costs – that remains to be seen,” he says. “But I know, from a client’s perspective, that they just think about [options] as one feature for something like FXall.”
Although the plethora of option MDP launches has been the result of expected regulation, it is still unclear what the framework of the options market place will look like. The issue of clearing houses being able to clear FX spot transactions at option expiry has yet to have a final resolution, and therefore the mandating of execution on Swap Execution Facilities, should the option MDPs meet those criteria, cannot yet be enforced.
That shouldn’t deter the development of e-trading services for options because, as Weisberg argues, the electronification of FX derivatives, certainly in the most vanilla of contracts, is part of the evolution of the market.
“It’s possible that some of this technology got built in anticipation of regulatory reform, but that doesn’t mean the success of the initiative is predicated on that,” Weisberg says. “We’ve been trading NDFs electronically for a few years now, which had initially been a manual market too. Options were the next product.”
FXall hopes to tap into growing demand for option workflow solutions from buy-side clients seeking to fulfil their fiduciary responsibilities using measures of best execution, while also streamlining straight-through processing, which has until now been very clunky relative to cash products because the voice-driven nature of the business.
“This is as much about making the process efficient. What some of the clients are telling us is that: ‘It used to take me 45 minutes to get a price back on this stuff. Now I can get a price back in a minute, and it just speeds my day up’,” Weisberg says. “Will the prices be better electronically? We will have to wait and see on that, but the workflow will be a lot better.”
Workflow is very much an FXall mantra that the company uses it to differentiate its service provision from rivals. This is even more important with the way options are traded, especially around delta hedge exchanges, Weisberg argues.
For instance, on FXall, a client will be able to leave an order to do a delta hedge overnight, and then the next day take that exact trade to a liquidity provider and exchange the delta to create a structure, such as an option collar.
“It’s very different than just getting a live option price, but that’s what clients actually do when they trade options, says Weisberg. “That’s we wanted to do on our platform.”