While the trend of banks historically ruling the FX options sphere will take time to shift, there’s a “very interesting opportunity” for non-bank market makers to get involved, agreed panellists at the TradeTech FX conference.
Kenza Medjkane
Ramon Puyane, head of FX trading at IMC, explained: “There’s a lot of volume going through FX options and that’s partly driven through interest rate differentials, central bank diverging policy, and a lot of geopolitical unrest.
“The non-banks can have a look at what’s currently happening in FX OTC, which is historically very voice driven, very manual and see how they can leverage their technology to provide liquidity for the end customer either directly through the banks or through multi dealer platforms, agency brokers, that kind of thing.”
When it comes to how the market sentiment is potentially shifting, John Rothstein, UK managing partner and global chief operating officer at Optiver, asserted that it is the new age traders who are most open to alternative liquidity providers, and thus driving potential change.
“I think some of those folks see alternative liquidity providers as very natural, they see use of technology as very natural and so when they’re looking for partnerships, it makes sense that there’s not as much convincing and that alternative liquidity is something that’s [perceived as] additive and valuable to a market […] we’re sort of seeing a turning point.”
Puyane agreed, highlighting that as the new generation continues to approach alternative liquidity in an ever more natural way, the rate of adoption is likely to increase soon.
“It’s like a generational shift so it’s going to take time, but we’ve seen quite a decent growth in a relatively short period of time,” he said.
Speaking about her approach from a trader perspective, Kenza Medjkane, senior FX and rates trader at Total Energies, explained that though the firm currently does not use non-bank liquidity for FX options, this move would “probably be soon”.
“Currently we are using mainly OTC through bank providers, but are more and more thinking about non-bank liquidity providers because they are offering better pricing, competitive pricings and maybe more agile platforms as well.”
Expanding on the aspect of how to access non-bank as opposed to bank liquidity in FX options, and how this would differ, Medjkane explained that for banks this is around 60-70% done via voice, however she added that the alternatives offer “some agile services [and] it’s something we’re looking at more and more”.