Singapore’s efforts to make itself the leading FX hub in Asia has seen several players in the spot market locate their pricing engines in the city state, but on January 27 that centre’s FX offering will be boosted by the opening of an institutional FX options trading platform with SynOption due to start trading. Initially the platform will operate during Singapore trading hours with a limited number of banks and clients to bed down the model, but founder and CEO Anchal Jain says the plan is to expand trading hours as more clients and banks are onboarded, to which he adds the company is in a hiring phase as it seeks to build its team through the addition of talented individuals.
SynOption is the first firm approved by Monetary Authority of Singapore (MAS) to establish and operate an organised market for a period of nine months under its Sandbox express framework. The firm has also been awarded a grant by MAS Financial Sector Development fund as a designated special project. By being part of the FX hub, SynOption intends to provide high speed connectivity to clients with lower trade rejection rates as more liquidity providers set up operations in Singapore.
The new platform was founded by Jain, who spent more than 12 years in JP Morgan’s FX business, most latterly as head of FX options for Asia, before moving to Balyasny Asset Management as a portfolio manager as the firm established a Singapore office. In April 2018 he started mapping out his plans for an FX options trading platform as he sought to exploit a changing mood in the FX options market.
“Three years ago there didn’t seem to be a huge appetite for an FX options platform, but the evolution of best execution policies as well as banks enhancing their electronic pricing capabilities in FX options, means there is appetite now,” he explains. “With my experience as a bank trader I felt that the aggregators that were available didn’t really appreciate bank liquidity providers and when I moved to the buy side there were screen real estate issues because you had to log on to multiple platforms to get competitive pricing. Most FX option pricing was still voice based as clients were not aware of the electronic liquidity available and its competitiveness.”
Jain’s vision for SynOption is that it meets the needs of clients looking for more execution tools and analytics while at the same time helping protect the valuable liquidity offered by its LPs. “We see this as an end-to-end workflow solution for the buy side,” he says. “The vision is to take them from idea to implementation: they have an idea, they analyse where markets are, how they have performed, use our analytics to determine possible trades, compare options and produce the trade, price and execute it and then STP it into their back-end systems. Hedge funds and regional banks especially want to be able to access data, analytics and pricing from one screen – SynOption provides that.”
“For the banks we have sought to differentiate ourselves from the current field of aggregators by establishing more protection for them,” he continues. “We intend to ensure that the valuable liquidity on our platform is respected and to do that we have innovative features like a patent-pending Arbitrage Protection as well as a pseudo- sweep protection called Liquidity Replenishment. We are trying to get to a place where the client and bank can co-exist and both operate confidently and easily, and this is a big step forward,” he says.
The platform has a look and feel similar to many single dealer offerings in that access to pricing and analytics is easy and available in graphical and tabular format – the click through process also allows a user to delve into greater detail. It offers single and multi-currency grids with curves, tables, smiles, heat maps, gamma, and theta analytics. “Generally speaking, the platform is aimed at anyone who bases their trading decisions upon value and that means banks, hedge funds and asset managers,” explains Jain.
As part of the pre-trade analytics, the range includes realised and implied volatilities, again both in graphical and grid format. Users also have access to historical charts for the various time series data. This is available for the five strategies across 75 currency pairs that SynOption will launch with.
The pricing screen itself isn’t just an RFQ widget. It gives the user the ability to analyse the Greeks of the trade in static as well as dynamic forms. Apart from giving the option to see Black-Scholes and Smile Greeks, the user can see how the Greeks are bucketed on pillar tenors, how the position evolves with time, and how spot and vol moves impact the Greeks of the position.
When a client requests a quote the platform offers best bid and offer, naturally, but there is also a graph of all price responses to the RFQ, A trade blotter is also available for further post-trade analysis. To demonstrate best execution, the platform gives the ability to go back to any trade and see graphically what the price stack was at execution time, and other parameters considered relevant to best execution. These include analysis of what spreads and prices were before the RFQ, as well as during the trade to give the user a feel for how the market was reacting during the decision making and execution phases.
Another piece of functionality offered by SynOption that will also help build the all-important relationship that Jain is seeking to promote, is the relationship analytics package. This allows a user to look at high level performance analytics across such areas as the best spread, whether the bank often matches the flow, spread competitiveness, response times, and reject rates. The user can also drill down into any or all aspects of these analytics to view by service element or by bank.
The evolution of a dealer-to-client electronic market in FX options has been slow given it is more than a decade since some big players made what proved to be a futile attempt to build a successful dealer-to-client platform, but Jain believes the circumstances now are very different – and it is hard to argue with him. Bank’’s electronic capabilities and offerings in the FX options space have grown significantly, especially over the past five years, but at the same time there is an increased desire on the part of the clients to put their dealers in competition.
This is where SynOption hopes to meet the growing need for a multi-dealer solution. “We can offer a single dealer experience in a multi-dealer environment,” he says. “We have already onboarded two major LPs and clients who have agreed to work with us to help us evolve the platform and we have others in our pipeline at various stages. In a world where electronic trading now dominates most linear products, the FX options market has lagged behind primarily due to the complexity of the product. Leveraging on our experience, we are trying to create an intuitive product that will make the electronification journey easier.”