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Foreign Exchange

Tradition-Icap adds currencies to volatility fixing service

Tradition-Icap, the leading interdealer broker for FX options, has added six new currency pairs to Vol-Fix, its daily volatility fixing service.

Vol-Fix was launched last month with the aim of improving market transparency and encouraging the growth of more sophisticated volatility products. Initially, the fixing was applied to the most liquid tenors in EURUSD to allow traders time to acclimatize to the new service, and Tradition-Icap has now added GBPUSD, USDJPY, AUDUSD, EURJPY, EURGBP and USDCAD to the platform.

Rupert Hodges, head of TFS Derivatives and G10 FX in London, said this is just the first wave of additional currency pairs to be added to the platform.

The fix itself is calculated using a volume-weighted average of all prices and deals traded on the electronic trading platform Volbroker, between 3.50pm and 4pm. The resulting mid-point rate is published everyday at 4pm and will be available on Bloomberg and Reuters, under the code VFIX.

“We’ve seen good take up of the service with a lot of different counterparties contributing rates,” says Hodges. “The daily auction off the back of the fixing is also showing very promising levels of interest.”

In the past, without an objective reference point for volatility, clients trading these instruments had to rely on where their bank counterparty told them volatility was trading at the time of settlement.

Market makers in the structured options market who spoke to EuromoneyFXNews have said that the absence of an objective reference point for volatility at a particular time has often inhibited clients from trading instruments such as cash-settled forward volatility agreements (FVAs).

Tradition-Icap says the objective of the Vol-Fix is to become the industry standard benchmark that will provide greater transparency in volatility trading between banks and, in turn, allow buy-side customers to trade FVAs and other such products with greater confidence.

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