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CME confirms vol pricing

As the weeklyFiX reported in July, the CME has plans to provide volatility-based quoting on six of its FX options on futures contracts. The exchange says it will probably launch the service in the first quarter of 2008. The move is designed to bring the pricing convention in line with that used in the predominant OTC market. “It’s only 20 years since the OTC FX options market went this way,” was one cynical option trader’s response.

Not surprisingly, Derek Sammann, managing director CME Group FX products, is more upbeat. “OTC FX options traders now have the opportunity to trade our FX options using the standard OTC quoting convention while benefiting from the transparency, liquidity and financial safeguards of CME Group’s FX market. The introduction of volatility-based quoting will increase the speed and efficiency of trading our FX options while virtually eliminating the execution risk when trading delta-neutral,” he says.

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