FX Options Going Electronic!

Discussion in 'Forex' started by Maverick74, Sep 20, 2006.

  1. Maverick74



    ISE Plans to List Foreign Currency Options; ISE FX Options(TM) Offer New Investment Strategy
    NEW YORK--(BUSINESS WIRE)--Sept. 20, 2006--The International Securities Exchange (NYSE: ISE) today announced its intent to create and list new foreign currency options, called ISE FX Options(TM). With ISE FX Options, retail and institutional investors will have a new investment strategy that allows them to express their views on the strength or weakness of the U.S. Dollar relative to foreign currencies. Similar to existing equity and index options products, these securities will trade in U.S. Dollars and will be readily available through traditional securities brokerage accounts. ISE expects trading in ISE FX Options to begin in the first quarter of 2007, pending regulatory approvals.

    David Krell, ISE's President and Chief Executive Officer, said, "We are pleased to expand the range of asset classes available to investors at ISE through the introduction of ISE FX Options. This innovative new offering furthers our goal to create differentiated products that are tailored to meet marketplace demand and that support smarter, more efficient trading."

    ISE will initially list the following four currency pairs: USD/EUR, USD/GBP, USD/JPY, and USD/CAD. All ISE FX Options will have U.S. Dollar-based underlying values, which will be scaled as needed to create an underlying value similar to traditional equity or index options. For example, if the current USD/EUR rate is .7852, the underlying value for the USD/EUR ISE FX Option would be 78.52. This format will allow investors to easily adopt the trading strategies they currently use for equity and index options. All products will be cash-settled, which eliminates the need for investors to hold the actual foreign currency.

    ISE has signed an agreement with Reuters, a leader in the foreign exchange marketplace, to provide the underlying data for ISE FX Options. Reuters' dealing community is among the largest in the world, allowing it to provide ISE with comprehensive and accurate data to support ISE FX Options.

    ISE will offer a new type of market maker membership class for quoting in ISE FX Options. This membership will provide the opportunity for both existing ISE members as well as new firms to electronically trade ISE FX Options in a low-cost environment. Electronic Access Members (EAMs) will be able to trade this new innovative product using their current memberships.

    Interactive Brokers, currently a primary market maker on the ISE options exchange, will become a market maker in the new ISE FX Options product through its Timber Hill subsidiary. "As usual, ISE continues to further the advancement of electronic trading and Interactive Brokers fully supports these efforts. The new cash-settled currency options are a first for listed electronic trading, and will be welcomed as a complementary product for those traders who already trade the cash and futures forex markets electronically," said Steve Sanders, Managing Director for Business Development at Interactive Brokers.
  2. Pabst


    What will the contract sizes be?

    IMO anything less than 125k will be a mistake.
  3. Please forgive my ignorance---are these "exotic" binary type options or traditional?


  4. Sounds like a great development. Take the currency options market out of the hands of the banks...

    *** What do people think? ***
    I see a reduction in the impact of barrier options as a positive for opportunity in the market. Currently, the banks take the other side, know them, and hunt/protect them - then disclose to the financial media at will when favorable for them to do so... I see that barrier options hem in the market and create tight ranges. I recall comments by George Soros conveying he had a unfavorable view toward the impact that barrier options made on the currency markets.

    Also, with spot options becoming more transparent with ISE or on CME/Reuters FX MarketSpace, the pricing will as well... This is a hollow point aimed right at currency options market making. And if ISE does it and it is making money maybe NASDAQ won't be far behind.

    The next markets that need to be tackled are the convertible, high yield, distressed debt markets although it seems like converts are the most realistic to trade on any type of exchange.
  5. Pabst


    Bet you can buy some cheap 2007 calls on Larry Coker.......:p
  6. Figures... our moronic exchange community defies conventions and prices them inverted to the standard. Here's a yen quote: .008540. Oh wait, they'll move that sneaky decimal two places: .8540. Much better!

    These are vanilla options.
  7. That is a good one. Any thoughts on this development? ---> Not to take up more room... No, developments in currency options not the Canes!
  8. Pabst


    Well, maybe Charlie Weiss or Nick Saban will be available......
  9. 10k units per contract. Mini-lot sizes in keeping with equity-option notional values.
  10. Maverick74


    My guess is they will trade like the ETF's. So if the Euro is 1.2710, it would trade like a $127.10 stock. So notional value of $12,710. The problem I have is not the contract sizes, but rather the trading hours. This is the biggest issue with the CME FX options. If these are going to be traded only during 7:20 to 2:00 then, Houston, we have a problem. These need to be traded at the very least during both London and NY hours. So 1am to 2pm lets say central time. If not, liquidity will be sparse.

    But perhaps ISE is going to be a pioneer here and move into the 24 hour marketplace. This would really bridge the gap between the equity and future world. No reason why Timber Hill, who will be the primary market maker here, can't make deep liquid markets 23 hours a day. They have both the CME FX options to use as a hedge as well as the OTC market to lay off risk. We'll see.

    It's a start.
    #10     Sep 20, 2006