GFI launches mark-to-market service for forex options

Inter-dealer broker GFI is attempting to establish a benchmark daily 'revaluation fixing' service for currency options in response to new accounting standards designed to assign a fair value to derivatives positions.

GFI, a leading broker in the foreign exchange options market, will set daily – at 10am in New York – implied volatility data for over-the-counter options on 20 currency pairs. It expects risk managers in banks, fund managers using forex options and other financial institutions to use the data to mark-to-market their derivatives portfolios. GFI said the data will reflect actual traded interbank prices supplemented with quotes from the company’s brokers.

All major currency pairs are covered, including the US dollar against the euro and the yen, and the euro against the yen.

“To date there has been no means to do this for forex options,” said Mike Binns, forex market specialist at GFI in London. “While capturing the current spot, forward and deposit rates necessary for revaluing forex options has been straightforward for some time, obtaining the correct implied volatility parameters for forex options remains a problem.”

GFI claims the service will be invaluable to forex option traders as of 2005, when international accounting standard (IAS) 39, which requires a fair value assigned to derivatives positions, is planned for introduction. “Current and future regulations require institutions to precisely and independently revalue their derivative contracts so that changes in their market value can be recorded,” said Binns. “We believe that providing the revaluation fixings and in a format which allows risk managers to input these into their own software promotes the most transparent solution for the whole market-place, both buy-side and banks,” he added.

The daily prices will be available on Moneyline Telerate market data screens and via GFI’s Fenics software system, while a subset of the data will be published daily in the Financial Times.

Tim Leitch, global head of forex options at JP Morgan Chase, commented: “The market is in need of a transparent, independent, comprehensive and reliable service that delivers the forex volatility parameters necessary to revalue individual and aggregated forex options.”