Trader Needs are Increasingly Demanding and Complex. To Make the Right Calls, the Right Solution is Paramount.

by the FX Options Team

Murex constantly analyzes the trends and themes impacting FX options desks and traders. Much has been written about a turbulent, unpredictable 2020, and we will not revisit volatility spikes related to COVID-19 or other pandemic-related effects.

We will try instead to give a sense of the landscape ahead for the FX options desk, as we see it, and why the solution Murex offers helps to navigate that landscape.

FX options desks face expanding complexity and demands. They are trading a wide variety of products and leveraging this large and growing catalog. eDistribution—linked to a larger digitization trend, currently used by larger investment banks and enabling them to deliver pricing through different channels in a more efficient way to their clients—is something mid-sized, regional and local bank trading desks increasingly want. FX target forward and FX accumulator are now valuable out-of-the-box products for clients, where previously they could be cost-prohibitive. Trading desks at small- and mid-sized banks have started executing target redemption forward (TARF) transactions, already the norm at larger institutions.

FX options desks transact in increasingly complex ways in a more tense regulatory environment. Just one example of this tension is the looming January 1, 2023, deadline for Fundamental Review of the Trading Book implementation—banks will be required to begin reporting based upon the new standards.

FX options desks trading needs underscore the importance of investment in a solution that strikes the right balance between accuracy and performance, particularly as FRTB requires heavy computing. Traders have become ever-more focused on analytics and real-time portfolio management, areas of heavy and ongoing Murex investment. Murex continuously aims to shorten analytics deployment and to extend its offering on pricing, lowering deployment cost by industrializing best practices and rationalizing configuration.

Traders can maximize margins by leveraging a reliable, market standard solution, featuring streamlined lifecycle management and plug-and-play models, with the ability to warehouse risk through best-in-class portfolio management and modeling capacity, product catalog and lifecycle management.

This is the first in a series of articles that will dive with some precision into how the Murex solution meets these evolving and complex FX options business needs. This initial post broadly describes the Murex FX options trading business. Subsequent articles in this series will home in on its specific pillars—core strengths—and describe the competitive advantages of the Murex FXO chain.

The Murex solution helps to navigate the landscape and context with the recognition that:

• Real-time portfolio management capabilities are hugely important for traders. Medium-sized clients can trade the product and handle the risk, keeping the margin for themselves. They want to warehouse the risk of the product they sell. System performance improvements also offer new possibilities for traders.

Real-time portfolio management capabilities benefit the trader through real-time risk sensitivities: positions and greeks are updated concurrently with market data, trades and event flows to show the state of the portfolio, allowing traders to make the proper business decisions.

One important thing to keep in mind about our innovation in real-time portfolio management is the democratization of the offering. It can be used by all Murex clients, from global or multi-regional investment banks to national banks—it is very much a market-standard tool.

• Flexible, adaptable and timely analytics are equally important. Hundreds of traders worldwide benefit from the solution’s vanilla business and it is well-positioned on volatility analytics. New features allow clients to use state-of-the-art, innovative pricing models.

Murex analytics feature, among others, a local stochastic volatility model with a validation tool to release this model quickly. Built to address pressing and upcoming regulatory needs and requirements—the models and analytics also anticipate future market evolutions.

• Proper lifecycle management is imperative to trading desks, reducing operational risk and driving higher processing volumes. MX.3 features extensive product catalog lifecycle management events and back-office capabilities (e.g., the generation of settlements and accounting). Clean lifecycle management is properly handled and covers all types of products.

• Traders need automation and digitization. An example of beneficial automation and digitization includes the placement of orders on a proper management system.

Another example would be the enhanced integration capabilities to the sales portal, as well as multi-dealer or single-dealer platforms.

As mentioned above, we will take deep-dives into real-time portfolio management on FXD products and desks and state-of the art models. We will also venture further afield. We hope you will join us.