Details on options are very thin. That is about everything one can glean online about FX Options clearing. Selecting the 7 proposed ccypairs over the past year, and only vanilla options, we can see monthly trade counts as high as 31, in November For any one ccypair, that same month saw nearly 11, EURUSD options:. I also pulled notional data from SDRViewand lastly, wanted to get an idea of typical maturities:. From all of this data gathering, we can glean a rough idea of headline metrics for these 7 currency pairs:. On the surface, this seems encouraging for options clearing. Note that if I expand my criteria to include all currency pairs, USDMXN seems to have roughly the share activity as AUDUSD. I wonder why CME has left MXN out of the first pass? We need to do a few more sanity checks when sizing this market. First, CME market plans to clear European style options. And second, they only plan to clear cash settled. So I examined an arbitrary week of data 5, trades across these 7 currency pairs and discovered:. So, on the bright side, European Vanilla options in the US represent nearly 1, trades per day. On share down side, only 1 or 2 of these appear to be cash settled. So the market is almost totally a deliverable market. This makes sense — the long-standing issue with clearing FX Options had been how to mitigate the settlement risk of market delivery. The CME approach appears to skip the settlement risk by going cash settlement, and LCH seem to embrace it with options CLS partnership. There is certainly a practice of firms closing out options positions before maturity, whether it is the client who wants to unwind, or even the dealer who wants to mitigate their pin risk. Speaking of pin risk — cash settling should be able to help everyone gain certainty. Quick tutorial on PIN risk — assume you have sold a 1. If you find out at Point here is that cash settlement would presumably give immediate certainty to everyone with a position that their trades have either expired or exercised. So the market seems large enough, and cash settling could have its own benefits. Surely, we should also expect some benefits of margining. It all depends on the starting point margined options not margined and how much portfolio offsets they are currently enjoying. I packaged up 3 different options, spread options across 3 separate counterparties. Calling the the SIMM Microservice with a CRIF file containing the related sensitivities for these trades:. Worth pointing out that the differences in margin for each similar-sized option are presumably due to the different levels of volatility in each pair. If I now novate all of these to a single counterparty CME or LCHwe can see a vast reduction. Again this is SIMM margin, perhaps to illustrate what we might expect at the upper end at a market house:. So, we go from 6. Of course, this is a terribly simple example, as we only have 2 USD calls and 1 USD put. The LCH have planned FX Options clearing for some time, and the CME website claims that FX Option clearing will happen this year. A quick look at the data shows that the market is certainly large enough. We might, however, question how many cash settled options are traded at the moment, as well as the appetite options the market to cash settle their options instead of taking delivery. At the same time, we acknowledge some efficiencies could exist if cash settlement was more readily available. Margining of FX Options is somewhat unclear at the moment, market neither CME or LCH have disclosed any samples on this. However, using SIMM margins as an estimate, we can see that the amounts are significant, and that while clearing may not reduce the IM on market individual trade we dont knowwe can say for certain that a reduction in the number share counterparties will certainly reduce the costs of margin. Stay informed with our FREE newsletter, share here. Toggle navigation Clarus Financial Technology. Home About Company Core Principles Clarus In the News Press Releases Products CHARM Microservices CCPView SDRView SEFView Blog Contact Us Login SDRView Professional SDRView Researcher SEFView CCPView. Examining The Cleared OTC FX Options Market. Market Skarecky April 18, No comments. Any details are still hard to find. However for CME, share plan seems to be: EURUSD, GBPUSD, USDJPY, AUDUSD, USDCHF, USDCAD, and EURGBP European style Cash Settled Some time in That is about everything one can glean online about FX Options clearing. For any one ccypair, that same month saw nearly 11, EURUSD options: Trade Counts of Vanilla FX Options on the SDR Per Month Market — March I also pulled notional data from SDRView options, and lastly, wanted to get share idea options typical maturities: Trade Counts of Vanilla FX Options on the SDR by Maturity March — March From all of market data gathering, we can glean a rough options of headline metrics for these 7 currency pairs: Average trade size is about 30 million USD. Roughly 1, Vanilla FX Options are traded per day In America and reported to SDRs. So about 36 billion USD notional per day. Most typically traded maturity is a 1 month option, but the standard pillars of 1W, 2W, 2M and 3M also stand out. I was a bit surprised to see nearly 15, 1-day options traded. MORE SANITY CHECKS We need to do a few more sanity checks when sizing this market. So I examined an arbitrary week of data 5, trades across share 7 currency pairs and discovered: Or another acronym for American Style? I can only find share options that have a settlement currency denoted. If you trust the SDR data, this might mean that there were only 12 cash-settled options traded. CASH SETTLING So the market is almost totally a deliverable market. On the flip side, we would need to acknowledge three things: MARGIN BENEFITS So the market seems market enough, and cash settling could have options own benefits. All OTC FX Options are bilateral today Only phase 1 UMR banks are having to exchange Initial margin on FX Options A large number clients will be coming from a prime-brokerage-like world where their FX Options are margined in aggregate alongside cash FX and other products. SIMM Account Change Margin EURUSD Bank 0 USDCAD Share 0 USDJPY Bank 0 Margin 0 Worth pointing out that the differences in margin for each similar-sized option are presumably due to the different levels of volatility in options pair. Again this is SIMM margin, perhaps to illustrate what we might expect share the upper end at a clearing house: SIMM Account Change Margin Single CCP 0 Margin 0 So, we go from 6. SUMMARY The LCH share planned FX Options clearing for some time, and the CME website claims that FX Option clearing will happen this options. Print Email LinkedIn Twitter Google. Mechanics of Cross Currency Swaps. Stay informed with our FREE weekly newsletter. Send to Email Address Your Name Your Email Address jQuery document. Sorry, your blog cannot share posts by email.
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By carefully reading my personal insights profile and putting outcomes in practice, I. find out that it is helpful by offering detail leadership information and organized analysis of myself, which includes something I even have not realized before.