Bloomberg builds FX options presence

The US company has begun beta testing its executable FX options capabilities with an unnamed bank and a couple of clients, a senior official has told RiskNews's sister publication FX Week.

The beta test started at the end of September, with a full launch aimed for the end of this month, said Phillip Brittan, New York-based global head of the FX business at Bloomberg Financial Terminal.

However, market participants questioned the level of demand the platform would attract. One forex options head at a major US bank said larger banks would be unlikely to want to use it, as they are trying to put more business through their single-bank platforms. He said dealers trying to build up their options business on single-bank platforms are likely to continue focusing efforts there rather than onto another platform. However, he added that the platform would appeal to second-tier banks, as it provides an economic way to offer electronic options trading.

The initiative is the next stage in Bloomberg’s foray into FX options. Over the past few months it has added a number of tools to its multi-leg structuring and pricing function, OVML. This includes structuring and pricing for barrier options and enabling mix-and-match of barriers with vanillas, as of September. The multi-leg structures can be saved on Bloomberg and recalled for revaluation later.

The company also added a classical scenario analysis tool, where sensitivity analysis can be run on the multi-leg option strategy, which was introduced in July.

"We have quite a number of mid- and back-office people that have begun to use the function, as well as traders and sales people. So you have front-office people and mid-office people pulling up options and revaluing them," said Brittan.

He added the vendor’s latest move allows users to go into OVML to structure an option strategy, price it and ask for a price from a bank – all within OVML.

"It’s more of a structured approach to options trading," said Brittan. "They can get an executable price from that bank and they can trade with or without a delta." He said some banks coming on to the system will be offering prices to clients with or without the delta hedge.

While one bank is taking part in the beta test, Brittan said several banks have committed to coming on the platform and are at varying stages of integration.

This latest move by Bloomberg follows the launch of its buy-side initiative, Bloomberg FX Streaming, its e-commerce platform for streaming executable prices, earlier this year.

The platform most recently added Citigroup as a liquidity provider. It joins Royal Bank of Scotland, WestLB, Bear Stearns, UniCredit Banca Mobiliare, Capitalia and Societe Generale, which are also providing executable streaming prices on the platform.

Over the next two quarters it plans to have a further 12 banks offering streaming prices. Brittan noted the volumes on the system have more than tripled over the past five months.