The hotly contested debate over whether electronic options can
ever truly be traded electronically, without the need for any
telephone negotiation, is continuing as some in the industry are
just getting on with moving first generation and the more vanilla
options on to the screen and letting time, and fast-moving
technological developments, take their course in enabling more
complex products to slowly move away from the hybrid model.
Last year GFI Group took the decision to open up its interbank options hybrid trading system, ForexMatch, to selected hedge funds, bringing to the FX market the closest it has to an ECN. Evgeni Mitkov, manager, electronic trading, at GFI Group says that technology gains in recent years have made it possible to trade options electronically, in real time. The key driver of growth in electronic trading is the demand for a liquid multi-contributor electronic FX derivatives market, similar to spot, from traders.
Mitkov says: "FX options growth has been restricted by the lack of transparency and phone execution. There have been swift increases in volumes and renewed interest from participants that have shunned or under-traded the market because it was not traded electronically. Naturally hedge funds and banks that are looking to grow their FX options business have been the major drivers behind the trend. As with FX spot, the early adopters are already reaping the benefits and are ahead of the curve."
He believes that most of FX derivatives have come of age now and are considered commoditised. For this reason GFI is putting specific FX options online, and
Mitkov believes complexity is no longer the issue. "As soon as the interbank had electronic trading, hedge funds wanted to be in that market. With access to electronic trading in options, hedge funds and smaller banks can now play in a market that required significant headcount in the phone era. The established banks have also used this to leverage more their traders."