Electronification and the future growth of FX Options

Transcription

1 Electronification and the future growth of FX Options For many years trading screens have been used primarily to support voice broking for FX options but in the past few years, there has been a slow shift towards the provision of streaming, executable prices. While banks shelved developments as they awaited clarity following the Strides have been made in electronic trading for FX options recently and as Frances Faulds discovers there are still more to come. Dodd-Frank Act, it has been proven that the technology for trading complex instruments such as options is available and now with the recent regulatory push for greater transparency through electronic trading, banks are building options trading functionality into their single bank platforms. Asa Attwell, Global Head of G10 FX Options, at BNP Paribas says that although BNP Paribas has traded FX options electronically in the interbank market for ten years, e-fx option trading has never been a big part of the market. While interbank brokers show electronic prices, voice trading is mostly used and Attwell estimates that 95 per cent of the interbank market is still voice-based. When we are talking about the electronification of FX options we are still mostly talking about banks distributing their prices to clients via STP or multi-bank platforms. BNP Paribas has been distributing prices electronically to customers for two years and Attwell estimates that that 30 per cent of FX options traded by BNP Paribas s clients are now traded electronically, on the bank s new platform, Cortex. He says: It tends to be a different type of client who trades electronically. Typically these are institutions with lots of small tickets to deal; like private banks. They are attracted by the speed and transparency of the pricing. LOWERING COST Although much of the thrust towards electronic trading is regulatory, Attwell says the move towards electronic trading lowers the cost of servicing a certain type client base. It also lowers the operational risk in terms of generating electronic confirmations with less need for manual intervention. Attwell says that BNP does not contribute FX option prices to any multi-bank platforms. We would have to pass on platform brokerage fees to our clients. It is much more cost effective for us to face our clients directly, he adds. As a relative late comer to the SDP market, compared with other banks, volume is steadily growing. Attwell says there is a set of clients that are much happier dealing electronically. He says: It was only when we rolled out our options platform that we realised that there were actually some clients that didn t want to trade by voice, and we were missing that business. Increasingly, clients are becoming much more comfortable with transacting electronically. Going forward, Attwell believes the lack of fungibility between exchange-traded products and OTC will need to be addressed if there is to be a greater amount of electronic trading. Furthermore, he believes there are concerns in the market that the incoming regulations are likely to increase the cost of doing business, and of hedging. Apart from exchange fees, Attwell adds, moving to standardised products may severely impact liquidity, with some structures or currency pairs possibly becoming illiquid. While, in theory, the electronification of any market tends to drive costs down, much of the work the bank is currently carrying out on the IT requirements for FX options is still being driven by regulatory demands. For users of options, execution has never been easier, and Attwell says clients are enjoying better liquidity and transparency, particularly electronically; but for market-makers, to stream prices and provide liquidity, the IT costs have probably never been higher. He adds: Clients have a variety of platforms to execute on, and advances are still being made on those platforms in terms of adding new products and provide other services but, on the other hand, the cost of being a market-maker in that sphere is also increasing. At the moment, BNP Paribas is taking a short-term approach and limiting developments to It tends to be a different type of client who trades electronically. Typically these are institutions with lots of small tickets to deal; like private banks. They are attracted by the speed and transparency of the pricing. CortexFX Asa Attwell either those needed for regulatory requirements or those that bring immediate benefits to existing clients electronically. We are scaling back further wide scale development until we get more clarity, he adds. The advantages of Cortex, and electronic trading of options, are numerous. Attwell says in particular Cortex gives clients the ability to prototype FX option ideas and get a good idea of the cost of execution of a trade, or a strategy 88 july 2014 e-forex july 2014 e-forex 89

2 on screen, whereas, previously clients might have been reluctant to ask for multiple quotes by phone. STREAMING PRICES John Juer, Head of FX Financial Engineering, at Commerzbank Corporates & Markets, says the lack of clarity over the treatment of SDPs under the Dodd-Frank Act slowed the further development at first, but because electronic trading does bring volume and ease processing of tickets, today it is still economical to build one still. A lot of lessons have been learned by banks over the past three years and banks, such as Commerzbank, have developed online offerings, with streaming prices, for vanilla FX options and certain exotics to enhance our client offering. Juer says: From a structural standpoint there are still a lot of question marks. There was a race towards multi-bank platforms three years ago. Some still exist but the list has shrunk as it was an overpopulated space. John Juer The FX options industry is still waiting for further clarity as to how multi-bank distribution would work in practice. A critical factor still needs to be clarified. John Juer says: There is still a question about what would happen with expiry and how FX options could be exercised in a SEF, as well as yet unclear issue of of settlement risk in a centrally cleared environment. A core part of Dodd-Frank Act is the have a cleared environment so that the buyer does not know who the seller is and the credit risk is to the clearing house. Currently FX options are only cleared at CME but they are limited in their strikes, expiry dates and currency pairs. The challenge is to fit the incredible amount of OTC variations into a cleared environment, says Juer. In the FX options wholesale, or voice-brokered, market, the most successful brokerage firms has been Volbroker. This enables prices to be distributed electronically, but the traders are still voice-broking on the back of the information provided on the screen. Recently Volbroker has launched a screen-based Specific Interest Options platform attempting to electronically trade more customised trades but this is too specific. Juer says: In the FX options space, users want screens, and certainly in the wholesale interbank market, they want the screens for the generic information but they don t need them for the actual transaction. Whereas in the retail space, it is different; they want specific detail, and to see a streaming of a two-way price on the screen. In the FX options space, users want screens, and certainly in the wholesale interbank market, they want the screens for the generic information but they don t need them for the actual transaction. However, where we think screens help is in the more complicated instruments like structured products. One of unique features of our Commander Kristall platform is that it allows real-time collaboration with the client on the other end. This speeds up the process, and is more efficient than sending s or talking on the phone, simply because both buyer and seller can see the same information, on the same screen, at the same time. He adds that the level of granularity depends on the end-user. This is where the market fragments. The spot market is relatively generic, the product is the same in both the retail and wholesale market, whereas there are more layers in the FX options products and it depends on the client, what kind of information they want to see on the screen. In market making there is probably too much information needed on a screen for multiple brokers competing for space to provide an effective solution especially when specific interests are common.the feeling is that a full screen based experience is still some way off and I suspect there will still be a lot of voice interaction when dealing interbank, Juer adds. ACCESS TO PRICING Eighteen months ago Commerzbank developed a new capability to its electronic trading platform for FX options; Commander Kristall, for investors who want to get yield pick-up from FX, enabling them to click-andtrade yield-enhanced products. The platform also offers collaborative structuring, as well as vanilla and first generation exotic options. E-options, part of Kristall, can also be used by Commerzbank s internal sales teams and Commerzbank employees across the globe to access pricing. According to Juer: We have already begun to roll this out to Source: BIS Triennial Central Bank Survey 2013 select clients. We want to provide technology, pricing and information to our clients and to make sure clients have right resources to deal with complex structures. However, in terms of rolling out its etrading platform for FX options, Commerzbank to the buy-side directly is taking a strategic approach, on a client-by-client basis. Says Juer: Every bank is different with a different target client base. We are not rolling it out indiscriminately, but making the decision depending on the relationship we have with the client, and the way the client is going to use the online pricing. While we want to provide technology, pricing and information to our clients, we don t want to provide that to anyone, especially with structured products. However, the majority of Commerzbank s options clients are still trading using voice, or a combination of voice and Bloomberg Chat functionality. However, while Juer believes the electronic trading element is set to grow as the offering gets stronger. Stefan Hamberger, head of e-fic Sales (Fixed Income and Currency), Foreign exchange market turnover by instrument 1 Net-net basis, daily averages in April at Commerzbank, says: It is about servicing our client base and there is clearly increased interest from the interbank business. We have developed e-options and Kristall to complete our platform offering and have a complete set of tools on our single bank portal, Commander, which is now a multi-product FX platform. Mid-sized German corporates, which are a large section of Commerzbank s client base, still prefer to trade, in the most part, by telephone, the smaller ones. Hamberger adds says: Institutional investors prefer to trade via Bloomberg and Bloomberg Chat but mid sized corporate clients prefer to have a single dealer platform or do a trade on the phone. In some sectors, electronic trading will continue to grow quickly, in others it will be a slower process. VALUATION TOOLS Bloomberg LP is a both an IT vendor and a multi-asset SEF and offers multi-asset reporting. For a number of years the firm has offered one of the market-leading options valuation tools, OVML, used daily by many. Paul Tivnann, global head of FX and Commodities Electronic Trading at Bloomberg, says Bloomberg views options electronic trading as part of a three step process valuation, execution and risk management. He says: Our execution tools were borne out of a very strong valuation franchise that has been in place now for some years. We did have a small single bank business prior to the advent of OTC regulation and the drive for options trading to shift to a multi-bank basis. Regulation was the trigger for this. Options, with their wider spreads have obviously been a more profitable business for banks than other FX instruments but the changes to the market are gradually pushing options from a bilateral to a multi-dealer process which will ultimately lead to spread compression, says Tivnann. He believes there are a myriad of benefits for the customer as a result of the migration and this coupled with Bloomberg s market leading product set makes a compelling story. Increased pre-trade transparency will allow users to compare options prices across their relationship banks on a premium basis and compare them on screen to executed trades reported to the DTCC swap data repository. He says: Through our risk management tools they will be able 90 july 2014 e-forex july 2014 e-forex 91

3 Institutional investors prefer to trade via Bloomberg and Bloomberg Chat but mid sized corporate clients prefer to have a single dealer platform or do a trade on the phone. Stefan Hamberger OVML <GO> - Option Valuation to see the impact on their positions of underlying moves based on shifts in spot, volatility and time horizon. Post trade, we will provide a single point of STP to downstream systems and also provide tools to seamlessly report transactions to trade repositories, satisfying EMIR and other regional requirements. In addition, from a compliance and audit perspective, all trades and competing quotes at the time of execution are stored for later retrieval which clearly is becoming a significant requirement. Tivnann believes that a significant challenge for the market is the ability to seamlessly move between regulated and unregulated environments as jurisdictional requirements dictate without having separate platforms for each. Bloomberg helps solve the problem of executing both within regulated environments and outside them, then dealing with what needs to be reported, and within which jurisdiction. He says: Our role is to take our customers through the process with minimum pain on their side, helping them transition between regulated and non-regulated environments, based upon instruments, jurisdictions, counterparties etc, and then help them successfully report on those trades where required and not trip up on any of the regulatory hurdles they might come across. This spans execution, valuation, risk management, compliance and reporting. Following on from what has happened in rates and credit in the US, where significant parts of this market are now mandated for SEF execution, the FX market will shortly be following suit and will move towards a combination of multibank RFQ / central limit order book execution. However for FX OTC instruments there are still challenges ahead. We are waiting to hear from the CFTC about mandated clearing dates for NDFs, which will be the first phase; there are structural issues with options with regards to the delivery of the physical FX via the central counterparty, which are now being explored by the market, he adds. BROAD LIQUIDITY Although this will be a gradual process, Tivnann says Bloomberg has been preparing for this for some time, working on its regulatory infrastructure and multi-bank options platform. On Bloomberg, clients can request options prices from a combination of bank electronic APIs as well as manually from voice desks, via tickets on Bloomberg giving a very broad liquidity pool. This therefore has involved Bloomberg integrating to bank APIs and in addition educating sell-side participants on how to price clients manually. He says: We have been training people up in this regard and working with banks to get their electronic pricing on board. To this end, bearing in mind, options clearing and execution could be 18 months down the road, Tivnann believes Bloomberg is on 92 july 2014 e-forex

4 Transparency brings confidence and that brings participation. If people can see prices, and view what has traded in the market beforehand through publicly available reporting, it makes the market more accessible. Paul Tivnannn track although the market is far more focused in the near term on NDFs. Tivnann believes the big question for FX options is going to be what model is going to be used. SEFs have to support different models an RFQ model and a central limit order book model. He says: The RFQ model is a much more flexible approach because you can ask for options pricing on any tenor, any strike, and look at different combinations of options and strategies of options. With the central order limit book approach, liquidity will be focused around certain tenors and deltas/strikes. Even if you look at central limit order book flow in rates and credit on SEFs it is fairly slow at the moment. Things will progress slowly and RFQ will be the dominant approach in the early days when we see options clearing and execution mandated. Electronic trading will make options pricing more accessible rather than having to go to five single dealer platforms, instant chat mechanisms, or phoning five banks, and compare them, hoping the first price has not moved, customers can compare prices, like-forlike, on a multi-bank execution environment with formatted tickets and everything seamlessly processed post trade through a single system. Tivnann says: The less work and operational risk involved and the more robust the compliance and regulatory provisions available, the more attractive trading is to the customer. Transparency brings confidence and that brings participation. If people can see prices, and view what has traded in the market beforehand through publicly available reporting, it makes the market more accessible. On the flipside, there are capital and credit constraints on banks, and Tivnann says we will have to wait and see what effect this has on bank liquidity in the options market and to what extent non-bank liquidity grows in the commoditised end of the market. There is still much to be played out in this space. SEFS AND CCPS 360 Treasury Systems AG (360T) has global coverage for the institutional side, with a large customer base comprising 50 per cent major corporations and 50 per cent regional and market-taking banks and real money asset managers. Glenn Rosenberg, global options product manager at 360T, says that the biggest structural change, centrally clearing FX options through a CCP, has yet to come. This, he says, is a very expensive proposition and so far there have been just a few multi-bank platforms and interdealer players in this space. He says: SDPs do good volumes and so do multi-bank portals with aggregated liquidity, and in the interdealer space there is similar success. This is all traded via bilateral and direct clearing using ISDA s giveup agreements. I think the biggest structural change will be two-fold: when central clearing is mandatory, and all trades have to be traded on a SEF and given-up to a CCP. The big issue that has yet to be solved is specifically how trades will be cleared through a CCP. It is not an easy problem to solve. Thus, Rosenberg believes there may very well be a two-tiered approach to implementation. Currently, options are a permitted trade on SEF but once they become required, then all trades must go through SEF, so while the first step will be to have the trades required, perhaps in its first iteration those trades will remain bilateral. He says: They meet the regulatory criteria, but clear in the current bilateral form. Then in time the regulators will have them clear through the CCP. When using multi-bank portals, Dodd-Frank will have met its objective of providing transparency, aggregation and multi-bank pricing, reporting and other intended benefits. Multi-bank portals, like 360T, are clearly the best suited for this new environment, Rosenberg says. There are onerous barriers to entry, he says, and the large, well established and well capitalised companies are best equipped for the challenge. This will result in a few that will be positioned to succeed in the post Dodd-Frank era, to meet the customer needs while also satisfying the regulators. There will likely be around five portals once the single bank platforms are no longer Dodd-Frank compatible, he adds. When this occurs and volumes start gravitate towards platforms Rosenberg believes there will be a structural change in how options are traded. At the moment it is an RFQ/ RFS business model but once trading is done through SEFs and CCPs, he believes there will be a greater push towards electronic trading and a shift towards an exchange style of trading, more akin to an order book and a posted market than an RFQ model. He says: This might be much further down the road, but SEFs/CCPs will have a dramatic impact on the structure and workflow requirements in the market. Rosenberg also notes that the growth of FX prime brokerage has also impacted the options market. However, the need to establish three and four party give-up agreements, to enable trade through prime brokers versus a CCP, has still not been addressed. He says: Clearing is going to be a major issue. Today, it is challenging for a large part of the market that trades through a prime broker to trade on SEFs because of various issues around three and four give-up agreements and regulatory risk. Although there are a handful of SDPs that have a fully-fledged options capability, Rosenberg believes the Glenn Rosenberg majority of the banks are lacking in the front-end functionality or connectivity to trade options either interbank or for trading for liquidity and the opportunity now will be for development via multi-bank portals. He says: But what seems to be typical is that nothing really changes until there is a deadline, he adds. The smaller banks are not prepared, and do not have the technology, and whether they go through multi-bank portals or partner with a software company that can provide the pipes, pricing engine or GUI to accommodate a lot of the banks, the majority of them will fall behind. When central clearing comes, Rosenberg believes multibank portals will be suited to capture this business. The lack of transparency and price discovery has always been an issue amongst the buy-side traders. Furthermore, Rosenberg believes that with a recent trend of traders leaving banks and going to the buy-side, the market is still onedirectional and the opportunity for the buy-side to participate or post their own market is still lacking. This is still much further down the road but ultimately there is going to be need to provide the buy-side the opportunity to participate or show their interest as well, he says. 360T s platform has a GUI front-end, with more than 25 banks streaming prices and manually quoting FX options, to enable the corporate and institutional trader to come in, whether it is through a manual RFQ or an auto Request for Stream. While options may represent a small overall percentage of the daily traded volume the trends are pointing towards growth in the While options may represent a small overall percentage of the daily traded volume the trends are pointing towards growth in the product. 360T product and we are seeing a lot more growth in FX coming from the non-traditional financial institutions, and institutions using derivatives for hedging or for alpha. It is a growing business and as a provider, it is essential to have a full product suite, adds Rosenberg. However, he says the smaller, independent technology companies have been slow to react with FX options products and he thinks it might be down to the cost of setting up business today. He believes that post-dodd-frank Act, the barriers have been raised and it is becoming harder to successfully compete due to the high reporting and regulatory, compliance and legal requirements. He says: While for now the unintended impact of the regulation has been to drive business back to voice or SDP s, the multi-bank portals that have made the proper investment are prepared to accommodate the business as originally intended by the spirit of Dodd-Frank. The barriers to entry may be high, the strongest companies will be best positioned, but the marketplace will be better for it. 94 july 2014 e-forex july 2014 e-forex 95

5 FX OPTIONS: RETAIL FX PERSPECTIVES RETAIL FX OPTIONS Breaking down those barriers, Sentry Derivatives, a leading technology provider has recently enhanced its FX options platform, adding more liquidity, flexibility and more options products, and offering the integration work needed for brokers to get both their institutional and retail customers online and trading quickly. Steven Reiter, CEO of Sentry Derivatives, says institutions have long had access to the FX options market, and increasingly they are accessing transparency and pricing information via single dealer platforms. New platforms like Sentry s bring that access and transparency to any trader. The biggest difference between the retail and institutional market, according to Reiter, is that the retail market had little or no electronic access to OTC FX options until recently. They are too small to trade with the banks, and although they might get access through their retail brokerage or private wealth divisions of the banks, there is little transparency and wide spreads. The exchanges, meanwhile offer very limited liquidity, strikes, and currency pairs. Overall, here are still relatively few banks or brokers that can offer FX options trading. Reiter says that this is changing. Sentry Derivatives partnered with FX Bridge and went live a year ago with an online platform with options on more than 35 currency pairs, expirations any day, any strike, with streaming click and deal prices, 24 hours a day. He says: The platform brings the liquidity of seven banks to our partner brokers, who bring it to their clients. The platform is available to both retail and smaller institutions. Any trader who doesn t have access to the interbank market, or access to a prime broker, will be surprised to know that they have access to the market on the level that we offer, with streaming dealable options prices and risk management tools included. We are a B2B company that is enabling retail and institutional brokers to bring a multi-bank online platform to their clients. One such broker, Ava Trade, licenses a white-labelled Sentry Derivatives product for their clients. GROWTH AREA Although it is early days, it is an area that is set to grow. Reiter says, simply because online platforms bring efficient access and transparency, and without an online platform there is no transparency. He says: Our platform not only offers streaming pricing and click and deal functions but we also offer integrated risk management tools, all in one package. Reiter stresses the difficulty of gaining access to the transparency of the interbank FX options market up until now. Traditionally, traders needed to go through a prime broker or call four or five banks to find the best price but for someone who only has access to one bank, or no access to a market-making bank, this platform offers the liquidity and transparency they could not get elsewhere. But the fact still remains that even in the interbank market, where there are a few excellent FX options platforms, the bulk of deals are still SentryOptions conducted by voice, or executed by chat, The banks that have platforms execute only per cent of their options transactions on their single bank platforms. Reiter says: The options market is different from spot. The options market is still made up of the liquidity providers, and the liquidity takers. The banks are still the market-makers because most customers have specific needs they want specific strikes, sizes, specific expiration dates or specific structures and the banks have a central role to play in providing that liquidity. It s not a multilateral marketplace like spot where everybody can trade with each other on a multitude of platforms, SEFs, and MTFs. Reiter argues options are different. Market making requires staffing, modelling, risk management tools and capital. There are so many factors involved in becoming an options market-maker that I don t believe the market lends itself to such a level multilateral marketplace, he adds. He believes it is still largely a negotiated marketplace and that banks have a role to play in providing liquidity but that multi-bank platforms and electronic trading can still help grow this market because the access they offer. Furthermore, the online platforms are easing the back office bottlenecks by helping to streamline 96 july 2014 e-forex

6 FX OPTIONS: RETAIL FX PERSPECTIVES Any trader who doesn t have access to the interbank market, or access to a prime broker, will be surprised to know that they have access to the market on the level that we offer, with streaming dealable options prices and risk management tools included. Steven Reiter the task of execution, as well as the matching, reconciliation and confirmation. Reiter says: Retail customers using the Sentry multi-bank platform, see it as a single bank platform. We offer the bank liquidity of the IDEALPRO banks and our own liquidity in order to satisfy retail customers and larger customers, whose trades can be passed through to the bank. Everything is click and deal, there is no negotiation. Institutional customers that want to trade $1 million, $5 million and $25 million options find our platform very valuable, but if they want to trade a $250 million ticket, they still want to go to their banks, to negotiate the price. The FX options market has grown tremendously in the last three years and it is the largest options market in the world. Reiter believes that much of this down to the growing numbers of hedge funds that are a lot more comfortable with trading FX options today, made possible by the growth of FX prime brokerage and the transparency and price discovery offered by online platforms. However, he adds, single-bank platforms will not guarantee best execution and, for a large trade, negotiation is still needed for the best price. For the largest trades, hedge funds may check out the single and multi-bank platforms, but they still try to find an even better price by negotiating with their brokers or banks and that is simply the nature of the market, says Reiter. Regulations may force more and more trading to the multibank arena, and we are there. But for now, we are all about access and transparency, streaming pricing, and excellent liquidity for all but the largest trades. Not every bank is able to offer an API for FX options trading at the moment and so the market is dominated by fewer than a dozen of the largest market-making banks, which are the liquidity providers and intermediate between buyers and sellers in a way that allows maximum flexibility for the end-users. I don t think that every participant can fit into an exchange model, he adds. Furthermore, if every bank is forced to trade only electronically, Reiter believes this would limit liquidity because not every bank has the resources to do this. While there are probably fewer than a dozen marketmaking that can offer an API for FX options, there are many more banks that can offer prices in options and they would be locked out of the market if they could only participate electronically. While there will be continued growth in multi-bank platforms, Reiter does not believe that any platform is going to replace the role of the major banks as marketmakers. He says: There is room in the FX market for multi-bank platforms to grow, and central clearing may even supplement or replace the bank s role as a credit intermediary, but the banks will remain the liquidity providers and market makers. Regulations are raising barriers to trading and barriers to liquidity as banks continue to pass risk, and the management of risk, around the world, and across jurisdictions, in what is a global market. These barriers can only be accommodated by extra staff or extra electronic trading but at the same time Reiter says electronic trading is creating more opportunity for everyone. EXCHANGE-TRADED FX OPTIONS Retail traders have also had access to electronically traded FX options for some time through Interactive Brokers (IB), which offers traders electronic access to exchange-traded FX options as part of its main Trader Workstation platform through a standalone module for FX called IDEALPRO. This offers direct market access with liquidity provided by the largest interbank FX providers. Andrew Wilkinson, chief market analyst at Interactive Brokers says: We can claim to offer access to 84 per cent of the available global pool of liquidity to customers who can use a variety of order types and trading algorithms to trade. However, customers do not have to trade using the standalone IDEALPRO module. They can trade via through any page of TWS alongside equity, bond, futures and options orders. All orders are routed via IDEALPRO to benefit from perhaps the tightest spreads in the industry and very low commissions. Interactive Brokers does not alter the amalgam of price quotes from its contributors nor widens the spread. In addition, customers can trade CME or PHLX-listed currency options, again using any available order-type. Customers naturally have exchange liquidity at their fingertips and are trading through that medium rather than with IB s own customers. If customers prefer to trade listed currency futures, available from the CME s Globex platform, they can easily choose that product rather than using IB s IDEALPRO platform. Says Wilkinson: The margin requirement is slightly more favourable for trading through our own venue, but the difference is low. Some customers may prefer to trade CME-listed currency options in conjunction with similar currency futures products for convenience. He adds that Interactive Brokers has always welcomed the migration away from floor to electronic trading of any product, where customers can compete on price directly with each other as it often leads to greater liquidity and tighter spreads, both of which are beneficial to fast-acting customers. Furthermore Wilkinson says that Interactive Brokers has contributed to the shift to online options trading with the launch of narrower spreads (onetenth of a pip) for major units, which in keeping with its low-cost offering is helping professional traders improve the odds of making winning trades. IB also allows clients to make side-by-side currency transactions attached to a stock order that puts them in control of currency risk when dealing in shares traded outside the US. Investors could alternatively hedge stock transactions using forex options from the same platform, he adds. ENHANCING PORTFOLIO YIELDS Wilkinson also believes that options can be used to enhance the overall yield of a portfolio, which in a low interest rate environment can be In our experience, active traders tend to migrate to where liquidity and volatility are greatest. It is also true to say that they tend to adopt technology that helps their efficiency and trading results. Andrew Wilkinson significant to the sell side, and expects that electronic trading is set for growth. He says: In our experience, active traders tend to migrate to where liquidity and volatility are greatest. It is also true to say that they tend to adopt technology that helps their efficiency and trading results. We find that customers tend to commoditise markets and are keen to deploy tried and trusted algorithms to where ever they spot liquid and volatile conditions. Although the FX market is very different from the equities and derivatives markets structurally, markets tend to follow in each other s footsteps as traders look for, and expect to find, the same functionality or ways of mimicking other markets. With this in mind, and with the fact that interest rate and credit OTC derivatives have just gone through the transition to SEF-trading and mandatory trading, it is assumed that the FX market will follow a similar path, albeit translated to accommodate its for its differences. 98 july 2014 e-forex july 2014 e-forex 99