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crisis. “The value proposition for clearing OTC FX
products on exchanges has strengthened, as buy side
customers are looking to reduce counter party credit
risk for all products,” he says.
ISE
Kris Monaco, director of new product development at
the International Securities Exchange (ISE) says that
the exchange now lists options on nine currency pairs,
four of which have a dual convention so that trades
can use the USD-based or USD-counter convention
for four currencies: Euro, British pound, Australian
dollar, and New Zealand dollar. ISE is also preparing
to launch options on the Brazilian real (USDBRL),
and pending regulatory approval, the exchange will
offer dual conventions on all currency pairs listed.
Says Monaco: “Innovation requires experimentation.
It is impossible to create new products and services in
a vacuum, so we elicit feedback from a broad group of
market participants and we test our ideas, keeping in
mind that we need to be flexible. We recently
launched a beta version of a new website called
FXoptions.com. With the new site, we hope to create
the best resource available for everything related to FX
options. The site will have trading ideas, virtual
trading contests, our new online TV program, trend
opinions and technical analysis, breaking news,
economic data, market commentary, options market
data, and much more. This is obviously a new area
for any exchange, but we feel that the best way to
promote a product is to educate, and this will be our
university.”
The exchange is also experimenting with product
enhancements, and is currently seeking regulatory
approval for an early market opening. Currently, the
options markets in the US open at 9:30AM ET and
ISE wants to begin trading at 7:30AM ET to capture
the critical cross-over trading session between London
and New York.
Additionally the exchange is also seeking regulatory
approval for a “penny strike.” The penny strike
would allow ISE to list a single $0.01 strike for each
expiration month. Monaco says: “In essence, a deep
in the money call would provide investors and traders
with more direct exposure to the spot price, and
would allow for tied-to-spot trading strategies. For
example, a trader could buy the penny strike call and
sell a slightly out of the money call against it.”
46 | january 2010 e-FOREX
Kris Monaco
“Innovation requires experimentation. It is impossible to
create new products and services in a vacuum...”
Monaco believes the key attractions of the ISE market
are liquidity, customer service, technology, execution
speed, and reliability. Using the expertise of ISE and
the Deutsche Börse Group, a new trading platform is
being developed and will be rolled out at ISE in late
2010. The new trading system may ultimately
support all the markets within Deutsche Börse Group.
“Together with Eurex, we are also establishing a
transatlantic clearing link between The Options
Clearing Corp (OCC) and Eurex Clearing. When the
link is implemented, pending regulatory approval,
Eurex members will be able to access ISE’s listings
while using their current Eurex membership and
clearing accounts. The link will facilitate trading in
US listings, including FX options,” says Monaco.
Impact of regulatory initiatives
While the financial crisis has certainly resulted in
increased scrutiny of OTC products, Monaco says
that without regulatory intervention, it is hard to
predict future migration of OTC products onto
exchange platforms. “Nevertheless, it is easy to
envisage firms putting risk controls in place that
would favour exchange-listed products with
centralised clearing,” he adds.
Monaco also says that regulatory changes in the retail
FX market appear to be having an impact. The