BarCap takes eFX options trading to the next level

The bank began beta testing the system with 24 corporate, hedge fund and bank clients in the fourth quarter of last year, after rolling out the upgrade internally across the bank's sales force.

Barclays Capital is offering two-way streaming tradable prices of FX options across 17 currency pairs out to one-year, and auto quoting is also being provided for up to 100 units of a currency pair, allowing pricing of any type of exotic FX option. The UK dealer plans to add more currency pairs, raise auto quoting levels “significantly” and add higher tenors.

"Effectively, it is a combination of streaming spot and streaming volatility prices, which combine to give you live premium prices upon which you can execute with a single click,” said Vince O'Sullivan, director in e-commerce at Barclays Capital in London. “The process is fully automated with the trader seeing the deal only once it has been executed. Even at this early stage traded volumes are very encouraging."

The service, targeted at corporates, hedge funds and banks, has been rolled out in the US and Europe, and the bank plans to extend it to clients in Asia. Ivan Ritossa, head of FX at Barclays Capital in London, said as this technology spreads, eFX options volumes could match those seen in spot FX.

"In global FX, spot volume transacted electronically is around 30% of total trading volumes, and we believe e-trading of FX options should grow to the same percentage once the technology solutions are available to clients. This would mean around $35 billion of FX options could be traded daily electronically by 2008," said Ritossa.