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A Reuters press release on FX Options caught my eye today. The announcement states that:

Thomson Reuters FX dealer-to-client venue saw a surge in options trading volumes of 166 percent in 2015 compared with the previous year. In particular the fourth quarter of 2015 saw record-high monthly, weekly and daily volumes with over 36 global and local active options price-makers and more than 225 active options price-takers now on Thomson Reuters FX platform.

Thomson Reuters FX Trading provides both relationship trading (bank-to-client) and bi-lateral trading (interbank) for vanilla and exotic FX options. In recent months the company has introduced electronic FX options callouts to streamline how banks can access options liquidity in the interbank market. By providing one single point of access to options liquidity via electronic callouts or via Thomson Reuters FXall dealer-to-client request-for-quote service, FX Trading helps market participants to efficiently manage their trading risk.

According to Phil Weisberg, Global Head of FX at Reuters:

“Due to their inherent complexity, FX options have been the last FX instrument to move from OTC markets to electronic platforms, but best execution requirements are seeing options volumes and participants on our platforms really flourish.

We are finding that in today’s highly fragmented and increasingly scrutinized FX market, price-takers – buy-side firms and smaller banks – want to use platforms that offer optimal transparency and help them prove effectiveness of execution whether it is mandated or not. They also want the efficiency and flexibility that comes with the feature-rich workflow tools that electronic platforms can provide.”

Reuters reports FX Options in the ‘Other Products’ category (red bars in the chart below), which saw an 8.8% gain in Dec 15 although only up 0.8% compared to Dec 14.

Reuters Monthly FX vols for Spot, Other and total vols Dec 15

Overall, FX Options only accounts for some 6% of daily FX volumes. According to the Bank of England data, volumes fell from $193bn/day in Oct 14 to $136bn/day in Apr 15 a -30% fall over the 6mth period, and -7% lower than the $147bn/day in Apr 14.

FX Options volumes from Bank of England FX Survey data (Apr 15)

Interestingly, looking at the Bank of England FX volume figures for FX Options by execution channel, the figures don’t seem to tally with the 166% surge in FX Options volumes in 2015 that the Reuters press release refers to on the Reuters dealer to client platform. The chart below shows FX Options vols by Single Dealer Platforms, showed that vols increased from 4.9% of all FX Options vols to 6.5% between Apr 14 and Apr 15, which is only a 33% increase over the period.

So, one can only assume that Reuters 166% FX Options vols growth was from a very low-level starting point. Although, that would still show volumes increasing 5 times faster than the increase observed via single dealer platforms, which was the fasted growing channel.

FX Options volumes by execution channel as Pct of total FXO volumes (Apr 14-15)
Bank of England data

Filed under: FX, Paul Blank, Regulation, Survey Results |