Automation in the FX options sector topped with new regulatory guidelines has been driving trading activity in FX options. Recent entrant to the world of FX options trading solutions, DCX, a joint venture between FXCM and SuperDerivatives has announced strong growth in trading volumes.
The clear direction of what asset classes are classified under the new Dodd Frank rulings has pushed the bar in FX options trading activity at DCX. The firm saw a spike in activity in 2013. Since January this year, the portal has seen a 367% hike in volumes. The platform allows users to issue RFQs which give exchange-like features to the derivatives environment, requirements necessary under Dodd Frank.
Anoushka Hampton, Global Head FX Options Sales at FXCM, spoke about the bullish news in a statement: “The growth in volumes on DCX is a clear indication that the anonymous nature of the platform has a great appeal to a particular segment of the market. Liquidity begets liquidity, and the return of volatility and clarity around the new regulations should boost the market going into 2014.”
DCX, launched in July 2011, has been the first trading platform that adheres to SEF rules for FX options, under the guidelines administered by the United States’ Dodd Frank Wall Street Reform and Consumer Protection Act. DCX sources liquidity from multiple providers. The new act aims to create an efficient and transparent marketplace, thus giving users accessibility to many participants. The official legislation states: “Facility, trading system or platform in which multiple participants have the ability to execute or trade, swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system, through any means of interstate commerce.”
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Stephen Baker, Head of Sales & Support, EMEA, at SuperDerivatives, commented in the official press briefing: “The focus on regulatory changes and transparency has laid the groundwork for a major boost in electronic trading. The multi-dealer FX options market is an increasingly competitive space and there have been some significant developments in recent weeks, so it will be interesting to see how the market landscape evolves over the next two years.”
Thomson Reuters went on a ‘FX options’ shopping spree this summer. The leading data and technology provider for financial markets purchased FX solutions in two consecutive months. It purchased Tradeweb’s FX options division in July, followed by risk management provider SigmaGenix in August 2013.
SuperDerivatives offers a range of solutions in the FX markets. The firm offers its proprietary trading platforms; DCX and SDX. In the news this week, Rabobank deployed SuperDerivatives’ SDX platform to improve its FX trading infrastructure.
FX options are expected to overtake FX Forwards for risk management and hedging purposes, the on-going developments in automated trading and regulation are boosting currency options as a viable hedging tool. In vanilla currency options, the maximum risk that a holder can lose is the option premium.
Mr Baker concluded in a comment to Forex Magnates: “It has been clear for many years that the market was moving towards electronic trading, with numerous regulatory, efficiency, transparency and cost benefits. We fully support the move to e-trading and feel it is in the best interests of all market participants, giving them access to liquidity, better price discovery, more certainty, post-trade transparency and full STP.”