EFX options broking sparks into life

According to statistics from the Foreign Exchange Committee in New York released last week, electronic brokers are seeing an increasing share of total FX options trading volumes. In April for example, 10.2% of $66.3 billion in FX options volumes was executed over electronic broking systems, such as Reuters Matching for FX Options, GFI's ForexMatch, and TFS-Icap's Volbroker. This is up from 9.8% of $1.2 trillion in volumes traded on electronic broking systems in April 2006.

Indeed, Reuters claims to be experiencing steady growth over its platforms, which can be linked to a number of initiatives. Over the past 18 months, for example, Reuters extended its portfolio of tradable emerging markets options, slicing back brokerage on currencies such as the Turkish lira, Hungarian forint, Israeli shekel and Russian ruble to $15 per million dollars notional traded over the platform. This compares to brokerage of $30–$100 per million dollars charged by voice brokers.

The broker said this has led to a significant rise in volumes, with options linked to the lira the most actively traded and, similarly, volumes in EUR/HUF outstripping those of USD/JPY. Liquidity over the platform enabled trades as big as $2 billion–$3 billion in USD/TRY in June. The broker is attempting to further increase activity for at least three banks, by enabling straight-through processing of trades over the platform by deploying the Reuters Trade Notification Service.

Rising eFX option volumes could also be attributed to the growing number of channels. GFI launched ForexMatch in July 2006, and has seen steady take-up since. The broker plans to extend its platforms to the hedge fund community by the end of September or in the fourth quarter, and is currently piloting with an undisclosed number of hedge funds. The broker said it plans to officially launch with 7–12 hedge funds.

Allaying the concerns of bank clients, the buy-side will operate by the same rules as banks with full name give-up at trade, and the same pricing. They will not however be given access to GFI's voice brokers. Similarly, it is likely that the buy-side will be paying a different brokerage.

The broker said it is working with the support of the banks, of which some may not initially have been overly excited about the increased price transparency their clients would get.