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Citi Deutsche & Warburg Dillon Read to Launch for Currency Options

Citibank, Deutsche Bank and Warburg Dillon Read, a division of UBS AG, have teamed up to launch a separate company,, an Internet-based interdealer broker for the currency options market. will provide market participants with online execution, pricing tools, value analysis and middle office functionality. The service will be rolled out over the course of the second quarter, subject to regulatory clearances and legal approvals, and will initially cover vanilla options in the major currencies.

Dirk Ward, chief technology officer for Deutsche Bank’s global markets e-commerce group in London, says the partners hope to expand the service as quickly as possible into other derivative products and into cash markets where they see a natural extension.

“The Internet is changing the way that all markets work. will accelerate this process for currency options, and, in the future, for other derivatives products,” adds Simon Jagot, global head of foreign exchange at UBS AG.

Guy Whittaker, Citi’s global head of FX in London, says the joint venture between three of the world’s largest derivatives dealers is in the spirit of the latest e-commerce catch phrase “co-opetition” – which describes competitors getting together to co-operate in areas of mutual interest.

Although it has been developed in partnership among Citi, Deutsche and UBS, the system will be open for all interbank trading. Whether or not it is eventually opened to customers remains to be seen. “There is no question that the world is changing, but it’s very important that initially, we get the interdealer broker function right. These three are very progressive institutions, so depending on demand, we will re-evaluate this at a later stage,” says Ward.

Ward adds that the partnership is open to future involvement by other participants, but are happy with the current size of the consortium, which has allowed the group to move quickly.

“We started with the premise that we wanted to develop a system that would be as open as possible to those banks that are not daily market makers. It is important that these banks feel comfortable increasing their usage of currency options for their customers, so we put a lot of thought into this,” says Ward.

“If it takes a salesperson 15 minutes to get an individual quote, and often times they have to show up to 10 quotes before dealing, the time involved doesn’t make it worth their while,” adds Ward. “By automating the process, we are trying to address this barrier to entry.”

“Because we are three of the most active market makers in currency options, provides the liquidity and eases the execution process. We decided early on that if we picked the right three partners, particularly in currency options, we could guarantee the liquidity level we were shooting for, and once you start on the road to offering these types of services, you soon get a ‘virtuous circle’.”

“The currency options market is ripe for technological solutions,” adds Whittaker. “We hope will offer greater transparency, a simplified dealing process and over time, better liquidity as it becomes the preferred source of trading.”

As will be competing for a share of the $5 trillion currency options market currently traded through brokers, the partnership is reminiscent of the EBS spot FX matching service, which was also launched by a consortium of banks. The introduction of EBS has changed the landscape of the spot FX industry, and the partners of hope for the same success.

“ will use the same features available in the current brokered market, but will add automated execution and greater transparency, as well as a direct download into deal capture systems and simple straight-through processing,” says Whittaker. “We will need to attract liquidity at the right price to be a viable alternative, but I think there is room for both and the traditional brokers, which can happily co-exist.”

Ward adds, “Day to day, Deutsche, Citi and UBS are fierce competitors. Now, we are co-operating on this business venture. Today, it looks like the voice brokers are our competitors, but in three or four months, these guys may be our closest friends. It’s an evolutionary process.”

The company will be London-based, and operational 24 hours per day from day one. Trading can be conducted either on a request basis or by auction matching. The traders from the three banks will use from their respective desks, with execution delivered over both the Internet and across private networks.

The bulk of the infrastructure already existed with Deutsche Bank, where a lot of the developmental work was done in-house, but Ward says the partners each had a lot of input. “We went through an extensive prototype process before Citi and UBS were involved. But once they came in, we went through a second prototype round, followed by a production development process. There would have been no way we could have developed a system that was generic enough to reach across institutions without the input of UBS and Citi,” Ward says. was due to announce its board members and CEO as Profit & Loss went to press, so these appointments will be covered in the May issue.

Profit & Loss

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