The International Securities Exchange (ISE) says it intends to create and list new foreign currency options in early 2007 pending regulatory approvals and has signed an agreement with Reuters to provide the underlying data.
Similar to existing equity and index options products, ISE FX Options will trade in US dollars and will be available through traditional securities brokerage accounts.
ISE will initially list the following four currency pairs: USD/EUR, USD/GBP, USD/JPY, and USD/CAD. All ISE FX Options will have US dollar-based underlying values, which will be scaled as needed to create an underlying value similar to traditional equity or index options. This will allow investors to easily adopt the trading strategies they currently use for equity and index options. All products will be cash-settled, which eliminates the need for investors to hold the actual foreign currency.
Exchange officials say that as Reuters’ dealing community is among the largest in the world, the vendor will provide ISE with comprehensive data to support the options.
David Krell, ISE’s president and CEO says the new offering furthers the New York-based exchange’s goal to create differentiated products that are tailored to meet marketplace demand and that support smarter, more efficient trading.
The exchange will offer a new type of market maker membership class for quoting in the options, which will allow both existing members as well as new firms to electronically trade the options in a low-cost environment, it says. Electronic Access Members will be able to trade the product using their current memberships.
Interactive Brokers, a primary market maker on the ISE options exchange, will become a market maker in the new ISE FX Options product through its Timber Hill subsidiary. “The new cash-settled currency options are a first for listed electronic trading, and will be welcomed as a complementary product for those traders who already trade the cash and futures forex markets electronically,” says Steve Sanders, managing director for business development at Interactive Brokers.