EuroMoney: SuperDerivatives electronic FX options trading venue SDeX plans to expand

EuroMoney reporter Farah Khalique is reporting this week that SuperDerivatives, a pioneer in derivatives trading technology and analytics, which had gone live back in May with FX options platform SDeX plans to expand the number of tradable asset classes from metals and FX to include oil, equity derivatives, credit and interest rates. The reporter states that “the derivatives specialist has ambitious plans to expand the platform and also modernize the way exotic FX options are traded on SDeX.”

Some highlights from the article include:

  • The most basic options are referred to as vanillas, while more complex multi-legged structures are considered exotic.
  • According to the Bank for International Settlements’ triennial survey in April 2013, options accounted for just 6% of daily FX market turnover.
  • Despite the highly electronic nature of FX trading, exotic options are by and large traded over

    the phone, due to the nature of their complexity.

  • They can be priced electronically, using pricing software from the likes of SuperDerivatives, but are still mostly voice traded.
  • It is possible to trade vanilla options and some exotic structures on single bank platforms, exchanges and multi-dealer venues, such as Bloomberg Tradebook, but exotic options have yet to join the electronic revolution en masse.
  • SDeX aggregates prices from several banks on one platform, David Collins CEO, SDX Trading believes this is a crucial part of the offering, since traders are now turning to multi-dealer platforms ahead of single-dealer venues, which is a trend gaining stream in financial markets.
  • Twenty-eight banks have agreed to be market makers on SDeX, including Goldman Sachs, Credit Suisse and RBS, as well as local currency specialists such as Turkish bank Akbank and Hungarian bank OTP.

  • The platform offers automatic pricing for vanilla and first-generation options, but more advanced options are likely to be picked up by the bank and quoted manually. Collins says, “People like to do those complex trades with human beings.” To that end, the creators of SDeX introduced a counter-offer function.

SuperDerivatives has chosen to leap forward with the platform at a time of historically low volatility. FX trading volumes are muted along with the volatility, particularly options trading, as people are less inclined to buy protection against moving exchange rates when they show little to no sign of moving.

Collins is sanguine about the timing. “You can’t choose the markets,” he says. “Markets have been quiet for so long, a general apathy seems to have come over the foreign-exchange market. But just when you think volatility has gone forever, it comes back with a vengeance.”

Click here to read the full article in EuroMoney.

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