FX Options Fungibility Edges Closer with Digital Vega, CME Launch

Closer links between OTC and listed FX options markets are being established with the launch of the long-awaited service that allows users of Digital Vega’s Medusa platform to request quotes and trades blocks on CME’s FX options on futures contracts.

The service is available for client testing, enabling buy-side firms to use existing OTC workflows on Medusa. This means, the firms say, market participants will be able to leverage Digital Vega’s established connectivity, GUI and workflow technology to request prices in CME Group’s centrally cleared FX options from multiple liquidity providers in competition.  These options can be significantly more margin efficient versus traditional OTC options for those subject to Uncleared Margin Rules (UMR).

“Enabling customers to negotiate and trade risk-transfer blocks via Digital Vega’s Medusa platform is an exciting development in the electronification of the FX options market,” says Chris Povey, head of FX options, CME Group. “This partnership lowers the barriers to entry for buy-side clients looking to gain the margin and operational benefits of our centrally cleared FX options by allowing them to use existing OTC workflows and lean on OTC relationships.  In addition, clients could gain access to new liquidity given there is no requirement for bilateral credit relationships.”

Mark Suter, execution chair and co-founder of Digital Vega adds, “Trading CME Group’s FX blocks on Digital Vega’s multi-dealer platform, provides a seamless execution solution to both buy-side and sell-side participants. Pricing and execution is in a format familiar to OTC traders, with deep liquidity provided by a broad group of market makers, and booking to a single central counterparty. This mitigates counterparty credit risk and generates potentially significant capital, margin, and operational efficiencies. Transaction reporting to CME ClearPort is automated and immediate, with detailed post-trade reporting and analytics available.

“Our new service provides liquidity access for more clients and market makers to trade with each other without having to establish new bilateral credit agreements, which we expect will result in increased liquidity for the market as a whole,” he continues. “We are encouraging clients to onboard to this service now so that they can fully test the system before they begin trading.”