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Emmanuel Nusimovici
“Attempts at moving FX options to electronic trading have not
been successful yet because most trades in the interbank
market are volatility trades and difficult to automate as they
are not traded as a single ticket…”.
electronic trading have not been successful yet because
most trades in the interbank market are volatility
trades and difficult to automate as they are not traded
as a single ticket, but as hedged strategy, unlike any
other asset class.”
Greater standardisation is enabling volatility to be
managed electronically, but it is still a very small part
of the market, he says. Although the instruments
themselves are standardised, the method of bilaterally
trading them, and the communication between banks,
is not, which still gives rise to operational risk.
According to Nusimovici, STP rates are much higher
post-trade, even though they are often manually
exercised, particularity with FX options. Using a
system like Summit, these options can be sorted by
strike so that the system alerts traders to whether they
are in-the-money or out-of-the-money. “The
technology is enabling banks to manage higher
volumes. The volumes traded in FX options today
would not be possible without the systems we have
today,” he says. Despite the fact volumes are smaller,
the more complex exotic structures need to be
monitored and the Misys solution enables users to
monitor transactions, and model any kind of pay-off
using pricing algorithms.
60 | january 2010 e-FOREX
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Convergence of FIX and FpML
One development that would impact the processing
of FX options and currency derivatives is the possible
convergence of the FIX protocol and FpML. In terms
of standardisation of the trading systems, there are
greater moves towards trading systems for hedged
options strategies, as opposed to straight options. For
sell-side customers, a high STP rate is essential to
survival. For buy-side customers, it is about
transparency and security. They have to be able to
prove the conditions of investment and need the
systems to track this.
Les Gosling, head of EMEA at TwoFour, says the
TwoFour System is a workflow product which offers
better integration of solutions used for transaction
management. It provides warnings and notifications,
and alerts to any bottlenecks in the trade’s lifecycle, all
the way through to the back office and settlement, to
remove risk and ultimately drive down the cost per
transaction.
For Gosling the key issues, or ‘choke points’, for
customers reside in confirmation, novation and
settlement processing in the back office, and the focus
as an application provider is to smooth this process by
Les Gosling
“Firms are looking to cope with known growth, and the
scalability to cope with unpredicted future growth, and
equate that back to cost per trade calculations...”