Institutional FX and derivatives broker Sucden Financial claims its new OTC FX options service has broken fresh ground in addressing concerns raised by corporates around liquidity, costs and the availability of pricing data.
The service provides users with the ability to price their own option structures online and benchmark those prices against independent data.
It offers more than 120 over-the-counter (OTC) FX option types, unlimited live streaming quotes for deliverable and non-deliverable FX pairs and more advanced technology, including multi-period hedging functionality, pre-trade analysis and risk controls.
According to Pritesh Ruparel, Sucden Financial’s head of FX options origination and structuring, increased trading volumes are evidence that reducing pricing complexity encourages clients to make greater use of options.
“Clients who may have only traded tens of options per year in the past now trade similar numbers every week,” he says.
Stephen Best, head of FX options at EBS BrokerTec, believes lack of data also negatively impacts volumes.
He notes that there is demand from liquidity consumers for indicative volatility data from trusted sources across all tenors, currency pairs and instruments, and acknowledges that better transparency fosters higher levels of confidence and, subsequently, more trading activity.
Chatham Financial managing director Amol Dhargalkar suggests limited liquidity tends to be related to restricted data availability and says liquidity drives more of the limits in options trading than data for corporate treasury.
Sucden Financial uses data provided by SuperDerivatives – part of ICE Data Services – to benchmark prices.
“We felt SuperDerivatives offered one of the strongest data sets in this market,” explains Ruparel. “We were able to test this during major market events – such as the EU referendum – and the data appeared to be more robust than that of the other providers we trialled.”
He accepts there are other organizations that provide graphical user interfaces allowing users to price option structures online, but says Sucden Financial offers more than just a trading system, with clients gaining access to its aggregated pricing liquidity derived from multiple tier-one bank and non-bank liquidity providers.
There has been much discussion of the future of voice trading for options and whether certain structures will continue to be traded over the phone.
Amol Dhargalkar, Chatham Financial
Bloomberg, for example, refers to advances in technical solutions for price generation, distribution and risk management plus increased scrutiny of operational efficiency as factors that will help to drive growth in the e-options market.
Yet few observers are willing to predict the elimination of options voice trading.
David Blair, a Singapore-based independent treasury consultant, suggests that although vanilla options are increasingly traded online, special options are so specific and rare that they will likely remain voice traded.
Electronic trading helps FX providers process a high volume of clients economically, which works well with smaller notional trading tickets. However, for the high notional tickets, there remains a desire to talk through strategy, pricing and do the deal over the phone.
“Voice trading will continue to be an important part of the options landscape for years to come, although like all markets we shall see greater liquidity via electronic methods as technology and markets evolve,” agrees Sucden Financial’s Ruparel.
“That is why we decided to provide a mechanism that brings together our clients with liquidity from both voice and electronic pricing FX options liquidity, by internally aggregating FX option pricing.”