OptAxe has received regulatory approval to operate a multilateral trading facility for axe-driven FX options trading, where the majority of the volume is still voice traded.

In October this year OptAxe said in a statement that it has received authorisation from the UK’s Financial Conduct Authority to launch an MTF. The approval follows a two-year process participating in the FCA’s Pathway Programme to gaining a full trading venue licence.

OptAxe was founded in 2021 by chief executive Chris Jackson and chief operating officer Yorke O’Leary to address fundamental shortcomings in FX options trading. Jackson was previously head of FX hedge fund sales at HSBC and  O’Leary had 15 years of FX sales experience at Goldman Sachs, HSBC and Citibank, covering hedge funds.

O’Leary said in a statement: “Securing FCA approval to operate a regulated MTF for FX options trading is a significant milestone for OptAxe and represents a step-change in how the industry operates. Globally, capital costs are rising and market participants urgently need to access, recycle and clear more FX options risk, whilst still facing inefficient distribution practices, complex price discovery methods and expensive execution outcomes.”

Jackson told Markets Media that the co-founders were often faced with having a large amount of inventory on the bank’s balance sheet that they wanted to trade, but they did not have a good way of getting that information to clients. Instead, they had to use chats, the phone or email so there was a big inefficiency loop.

“We realised that there must be a better way to do this and technology could help,” said Jackson. “We had seen the blueprint in the growth of platforms in fixed income and credit markets, where we could potentially bring a lot more visibility to liquidity discovery.”

He continued there has been a huge move towards efficiency gains by trading electronically in equities and fixed income, and cost savings, better liquidity provision and data control. However, foreign exchange is still an over-the-counter (OTC)-driven marketplace so there is a more fragmented view of liquidity without a single golden source of pricing or liquidity as FX options were never mandated to be cleared by regulators.

OptAxe estimated that the FX options market has an overall size of $300bn per day, but only 25% of bank-to-client axes are distributed successfully. The new MTF automates manual, bilateral processes and consolidates available axe inventory into a single platform.

Jackson said there is a huge amount of talk in the industry around the opportunity set in FX options, because it is the last place where the majority of the volume is still voice traded.

“In other markets the rate of electronic trading was slow at the start and then rapidly accelerated, and we are at that inflection point,” added Jackson.

Lee Beng Hong, CEO of SGX FX and head of wholesale markets & platforms at Singapore Exchange (SGX Group), told Markets Media in October that the company would like to grow electronic trading of currency options.

Lee told Markets Media: “There is a big opportunity to bring the same efficiency we provide into the options market to uplift the overall efficiency of the entire market.”

Growth

OptAxe’s team in London built the platform using modern architecture that is cloud native and modular, which Jackson said allows the firm to be nimble. The venue still plugs into API infrastructure that has been in place with banks for many years so integration is as seamless as possible with their own trading systems.

“We have had really good traction from the banks we have spoken to, and they are very comfortable that we are offering an RFQ (request-for-quote) trading system, as opposed to a central limit order book, so they can trade directly with their existing clients,” said Jackson.

He continued that OptAxe is also having conversations with tier one hedge funds and asset managers and has a very good user group for testing.

“We anticipate a launch next year with a small user group, and then rolling into phase two and three with larger groups,” he added.

O’Leary told Markets Media that if inventory can be distributed in a more efficient way, and traders start to see success in the clearing of that inventory, that turns into a virtuous circle.

“This time next year we would like to be up and running with a number of participants, trading with each other, both bank to bank trading and bank to clients, and with a healthy pipeline of additional participants in the process of onboarding,” O’Leary added.

Jackson said they see OptAxe as a sales efficiency tool, as well as a trading, risk management and liquidity discovery tool as posting axes in a chat is something salespeople should not be doing in this day and age. Another potential growth area is data and analytics.

“One of the benefits of consolidating trading is the ability to have an independent view of what is happening across the marketplace,” added Jackson. “We will be able to have a holistic view of the whole market, and providing that data and analytics back to our clients is essential.”