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Significant news for the foreign exchange (FX) options market today as Digital Vega and CME Group have announced a new block trading service for FX options. The service, currently in the client testing phase, will allow buy-side firms to use existing over-the-counter (OTC) workflows on Digital Vega's Medusa platform to request quotes and trade blocks of FX options on futures.
The collaboration aims to provide market participants with access to CME Group's centrally cleared FX options through Digital Vega's established connectivity, GUI, and workflow technology. Users will be able to request prices from multiple liquidity providers in a competitive environment. These options can be significantly more margin efficient versus traditional OTC options for those subject to Uncleared Margin Rules, as CME Group's centrally cleared FX options can be more margin efficient compared to traditional OTC options.
Chris Povey, Executive Director and Head of FX Options at CME Group, commented on the development: "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. 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, Executive Chairman and Co-Founder of Digital Vega, explained the benefits of the new service: "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."
Suter also highlighted the potential for increased market liquidity: “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. We are encouraging clients to onboard to this service now so that they can fully test the system before they begin trading.”
