OptAxe Launches FX Options MTF
Posted by Colin Lambert. Last updated: October 22, 2024
FX options centralised trading venue OptAxe has received FCA authorisation in the UK and has officially launched a multi-lateral trading facility (MTF) for axe-driven FX options trading.
As the two founders of OptAxe explain in this Full FX Unfiltered video interview, the platform was launched to address multiple issues in FX options trading, notably, getting the right kind of liquidity to the buy side and being able to deliver specific interest inside the bid and offer. The absence of centralised information prevents full visibility of axe inventory, hinders the ability to benchmark options executions, and risks information leakage, the firm observes.
The FCA authorisation comes at the end of a two-year process as part of the UK regulator’s Pathway Programme. OptAxe says the platform offers a range of connectivity options, including Web GUI and a variety of APIs, including REST and FIX.
OptAxe analysis suggests that only 25% of bank-to-client axes are distributed successfully via traditional channels. Coupled with prevailing practices of dispersed, multi-pod portfolio management models, diminishing numbers of interbank counterparties and the rise of multiple ECNs and platforms, it says FX trading has become significantly fragmented. This fragmentation now presents substantial position distribution and coverage challenges, and places constraints on effective price discovery and execution options.
It also observes that the Uncleared Margin Rules [UMR], and regulatory obligations mandating Initial Margining for all trades, have exponentially raised the cost of running FX options businesses, with bilateral trading margin requirements heavily impacting balance sheets. This means that building an efficient price discovery process into the market’s workflow brings multiple advantages, and to meet this demand, OptAxe aggregates axe inventory into a single platform, effectively acting as a multi-issuer venue rather than a multi-dealer platform, with RFQ and counterparty disclosure at the point of execution.
“We set out to bring much-needed innovation to the FX options market, improve liquidity discovery and unlock previously untapped trading opportunities,” says Chris Jackson, CEO and co-founder of OptAxe. “OptAxe is a fully centralised, regulated venue for liquidity discovery, dissemination and execution that empowers trading participants with actionable insights from centralised liquidity information. We automate manual, bilateral processes and consolidate available axe inventory into a single platform, effectively acting as a multi-issuer, not a multi-dealer platform, RFQ-based venue.”
Yorke O’Leary, COO and co-founder, adds, “Securing FCA approval to operate a regulated MTF for FX options trading is a significant milestone for OptAxe and represents a step-change in how the industry operates. Globally, capital costs are rising and market participants urgently need to access, recycle and clear more FX options risk, whilst still facing inefficient distribution practices, complex price discovery methods and expensive execution outcomes. With OptAxe, all market participants can easily access a centralised source of actionable axe inventory with evidence-based pricing that meets the demands of the trading community today and tomorrow.
“With the overall size of the FX options market estimated to be approximately $300 billion per day, any improvement in the current distribution, and hence execution success rate will be transformative,” he adds.