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About TraditionSEF.
Welcome to TraditionSEF, the swap execution facility operated by Tradition.
Tradition wins two SEF accolades at the GlobalCapital Global Derivatives Awards 2017.
TraditionSEF implementation of CFTC "10 minute" affirmation/clearing requirement - effective August 1, 2016.
Onboarding.
Please click on the link below to select the TraditionSEF onboarding documentation most suitable for your participation status.
Daily Activity File.
Please click on the link below to download the latest TraditionSEF daily activity file.

Fx options sef

The Tradition SEF BrokerSuite FXO platform provides functionality for facilitating SEF execution of pre-arranged transactions in FX Options. Such transactions may be introduced by participants and/or Introducing Brokers subject to the SEF’s pre-arranged trade rules. A pre-arranged transaction is submitted to Tradition SEF via BrokerSuite FXO trade entry portal, which inputs the trade into the SEF deal capture system, for confirmation and transmission to a swap data repository. Alternatively, FX Option trades may be executed through communications with our team of professional SEF execution specialists.
FX NDFs; FX NDOs.
The Tradition SEF TTC platform provides functionality for facilitating SEF execution of pre-arranged transactions in FX NDFs and NDOs. Such transactions may be introduced by participants and/or Introducing Brokers subject to the SEF’s pre-arranged trade rules. A pre-arranged transaction is submitted to Tradition SEF via TTC trade entry portal, which inputs the trade into the SEF deal capture system, for confirmation and transmission to a swap data repository. Alternatively, FX NDF and NDO trades may be executed through communications with our team of professional SEF execution specialists.
FX products.
Products supported by TraditionSEF for FX include but are not limited to the following:
Physically-settled options: all manner of put, call, straddle, risk-reversal, combination, butterflies, delta-neutral, and exotic options with tenors of overnight to 30 years. Swaps: volatility, correlation and variance swaps. Cash-settled instruments: non-deliverable forwards, non-deliverable FX options (all manner of strategies).
To view a full list of FX products and associated characteristics, please refer to TraditionSEF Rulebook, Appendix C.

Clarus Financial Technology.
In this article I will look at FX Options trade volumes as reported to US Swap Data Repositories and volumes published by US Swap Execution Facilities. This analysis highlights the following:
Vanilla FX Option volume averages 24,000 trades a month in the largest 10 currency pairs EUR/USD is the most active pair with up to 11,500 trades or $600 billion notional a month 2015 Volumes are 30% higher than 2014 On SEF is 27%, while Off SEF is 63% of volume reported by US persons Barrier Options have comparable trade volume to Vanilla Options but a fraction of the notional Tradition is the leading SEF with 34% share (in the 10 pairs) BGC is close behind with 29% share D2C SEFs have <1% of the volume.
Now onto the charts, data and detail.
Volumes in 2015.
Using SDRView we can look at 2015 monthly trade count volumes of Vanilla Options for the ten most traded currency pairs.
March 2015 was the highest volume month with 33,698 trades reported Monthly trade volume for the recent 5 months is consistently around 24,000 trades a month Only Calls and Puts are reported, which means Straddles are being reported as two trades EUR/USD is the most traded pair with 6,500 to 11,500 trades each month USD/JPY is the next most traded with 4,000 to 6,000 trades USD/CAD and AUD/USD follow with 2,000 to 4,500 trades GBP/USD and USD/MXN next with 1,500 to 3,000 trades.
And the same in gross notional terms.
March 2015 was the highest with > $1,200 billion traded Recent months have consistently averaged > $775 billion Recall that capped notional rules mean that actual volumes are somewhat higher Gross Notional of Capped trades averages between 15% to 24% of the Standard trades Suggesting that Actual Gross Notional may be 10% to 20% higher than the reported figures EUR/USD is the most traded pair with $260b to $580b gross notional per month USD/JPY is the next most traded with $135b to $240b gross notional.
Comparing to 2014 Volumes.
Lets see how this compares to the corresponding period in 2014.
Every month in 2015 is higher than the corresponding month in 2014, some much more so e. g. March.
Gross notional volume is on average 30% higher in 2015 vs 2014.
A sign of more currency volatility leading to more hedging and speculation?
On SEF vs Off SEF.
What about On SEF vs Off SEF trading.
Again for the same 10 currency pairs.
Showing that the majority of trading is Off SEF.
Not surprising as their is no mandate to trade FX Options On SEF and their is no Clearing.
In-fact On SEF is on average 27% of total gross notional, while Off SEF is 73%.
The corresponding period in 2014 had 32% On SEF and 68% Off SEF.
So 2015 shows a drop of 5% in On SEF.
Statistical noise or a trend caused by different behaviour e. g more Client trading in 2015?
Barrier Options.
As well as Vanilla Options, a decent amount of trading takes place in Barriers.
The table below shows trade counts in August 2015 for currency pair and product type.
In some pairs, AUD, GBP and SGD more Barrier trades were traded than Vanilla Only in CAD, MXN and ZAR are the Barrier trade counts far lower than Vanilla (NDO is Non Deliverable Option and NDF is Non Deliverable Forward) (Not sure why these are being reported in USD/JPY or EUR/USD which are deliverable currencys!)
However in Gross Notional terms Barriers are far smaller than Vanilla, as the table below shows.
Meaning that the notional size of each barrier option is a small fraction of the size of a vanilla option.
SEF Market Share.
Using SEFView we can look at market share for each SEF for our 10 currency pairs.
First for the period 1 Jan to 31 Aug 2015.
EUR is by far the biggest BGC and Trads are the leaders GFI and Tullets follow Reuters shows some volume CAD and JPY are the next largest pairs.
The same data but as percentage share.
BGC dominates in MXN Tradition dominates in CAD Tradition is top in AUD, GBP, ZAR BGC is top in EUR, CHF, JPY, SGD GFI is strong in all pairs TP is top in TRY and strong in all pairs D2D SEFs dominate the figures D2C SEFs have less than 1% share.
And a by month view to look for any change in share over the year.
Tradition has 34% share, with a low of 30% in May and Aug BCG has 29% share, with a low of 26% in Feb and a high of 33% in Aug GFI has 21% share, with a low of 19% in Jul and a high of 23% in Mar Tullets has 15% share, with a low of 12% in Jul and a high of 17% in May Reuters has 0.6% BBG and 360T < 0.1%
Thats it for market share.
Final Thoughts.
There is lots of interesting data available on FX Options.
Today’s blog has just scratched the service.
I hope to look in future at more detail.
Including Expiry’s, Strikes, Prices, Straddles, Frequency of trades, …
You can also do yourself by using SDRView and SEFView.
Stay informed with our FREE newsletter, subscribe here.

bankingtech.
Known Unknowns: preparing for SEF-traded FX options.
Written by Banking Technology 10 Feb 2014.
“With respect to transactions involving swaps subject to the clearing requirement … counterparties shall … execute the transaction on a board of trade designated as a contract market … or execute the transaction on a swap execution facility.”
Robert Gray is head of sales for EMEA at Dion Global Solutions.
With these words, the Dodd-Frank Act launched a new acronym into the alphabet soup of modern capital markets. In the years since, Swap Execution Facilities have been the subject of repeated discussions, consultations, submissions and interpretations, writes Robert Gray . Deadlines have been pushed back, and pushed back again. FX traders watched in relief from the side-lines before it was confirmed that FX options and NDFs were to be classed as swaps by the CFTC and subject to the new demands for exchange trading.
And now, after three years of furious wrangling, SEFs are finally here.
Clarity and confusion.
Almost 20 organisations registered as a SEF with the CFTC before the deadline in October last year. But in keeping with the confusion and complexity that has surrounded SEFs since they were first proposed, the move hasn’t created the clarity that some were hoping for.
Despite the very clear deadlines, at least two operators of electronic options platforms failed to register, citing unexpected changes to the final rules and regulations. The CFTC has published a series of no-action letters giving SEFs more time to meet certain rules, including pre-execution screening, reporting and confirmation requirements. Users are also being given more time to review the SEF rulebooks and sign user agreements.
If this wasn’t enough, the other glaring problem is that the prescriptive tendencies of U. S regulators contrast with the more direct approach taken in Europe. The treatment of FX options is very different in both jurisdictions and to date, FX options do not fall under the remit of EMIR. In contrast, MiFID and MiFID II, which introduced competitive, multi-market trading environments, already cover all financial instruments. Nominally at least these include an FX option, which further complicates the international landscape.
Fully alive to the possibility of regulatory arbitrage, and reluctant to see New York’s swaps business decamp to London or Frankfurt, regulators are unlikely to leave these anomalies in place for long. We have already seen a more concerted effort to create a level playing field and clearly define the rules. Most recently, the European Securities and Markets Authority (ESMA) announced a firm deadline of February 12th 2014 for firms needing to sign up to mandatory trade reporting. This is not just across FX, but all other over-the-counter asset classes.
So what does all this mean for participants in the FX options markets? We can certainly expect eventual consolidation among the first tranche of SEFs to be launched. However, the underlying principles of transparency, visibility and control are abundantly clear. Every aspect of the trading and decision-making process will be recorded, reported and ready to audit. Trading houses will need to meet these demands, and build best practice into their operations so that they are able to adapt to these and any further changes down the line. Unfortunately, despite deadlines such as ESMA fast approaching, reporting is not something the market is currently prepared for. The problem is that many participants are without the infrastructure and software tools required to fall in line with mandatory reporting procedures.
Preparing for the future.
Translated into the day-to-day reality of FX options trading, it will no longer be enough for banks to execute a trade on behalf of a client and simply inform them of the results. Nor will it be acceptable to provide that client solely with a straightforward execution capability.
The particular challenge of the FX options space is that it is a very bespoke market. According to a survey from the Bank of International Settlements (BIS), nearly 10 per cent of all trades are accounted for by non-financial corporates, many of which will be using options to hedge their currency positions. Treasurers at these organisations are looking for a unique contract that applies to their particular circumstances. There is no historical pricing data, and finding the mid-market rate is challenging at best. Banks need to guarantee an unprecedented level of transparency, not only to demonstrate the effectiveness of their trading strategy, but also to protect themselves against potential accusations of shady behaviour.
To do that, FX options traders will need three essential capabilities. Firstly, they will require accurate and open pricing as well as valuations that are applied consistently at every stage of the workflow. Secondly they will require flexibility regarding the selection of pricing models to ensure that the most appropriate are selected. Finally, support is needed for efficient price discovery both for single trades and whole books of options.
There will also need to be the ability to conduct pre and post-trade analysis of trading decisions, and effective reporting to ensure that clients are informed at each stage. That will almost certainly include accurate stress testing and scenario analysis to ensure that portfolios are compliant with client mandates as well as regulations.
Should FX options move on to exchanges, they become more sensitive to market movements. The overnight run is unlikely to satisfy clients, who want to know the valuation of their holdings in near real-time. Traders will likely need the ability to calculate the mark-to-market of multiple portfolios and thousands of options positions in a very short timeframe.
The role of corporates in the FX options market has thrown up another challenge with regards to the SEF regulations. Initially the CFTC required investors to issue Request for Quotes to five banks or market makers for each potential trade. Lobbying has reduced that to two, but it will eventually rise to three. The concern is that although multiple RFQs give the impression of increased competition, it also increases the risk of information leakage – again enhanced by the bespoke but sporadic nature of the market – which has the exact opposite effect.
Banks and their clients therefore need tools that allow them to work from the same blotter (record of trades made over a period of time) and pricing model to facilitate a trade. With this kind of system in place, a corporate treasurer can rely on his bank being able to send back a price for a particular structure at the click of a button. Traders can price it up and assess how it fits into their book, and the treasurer can decide whether or not to complete the trade. Each stage is captured in the same system so pricing remains accurate, the gap between an order being placed, priced and executed is reduced to seconds, and information leakage is minimised.
Finally, firms will eventually have to predict and manage end-of-day collateral requirements. Central clearing will inevitably lead to firms holding sizable positions with each clearing house, with capital adequacy requirements demanding that they are able to calculate and then hold sufficient capital against these positions. It’s also a challenge for clearing houses and trade repositories who need to be able to calculate margin.
This is a challenge for the FX options space as a whole. Currently central clearing is not mandated, but the regulatory trajectory suggests that it is only a matter of time. The unprecedented levels of data now being directed at these bodies are overwhelming the systems in place. There is also still some confusion about how and whether clearing houses will be able to translate that data into meaningful information and enable trading parties to conduct a mark-to-market of their books.
Windows of opportunity.
So for all the confusion surrounding SEFs, clearing and overall regulatory rules, there are also some very clear requirements that have emerged. While industry bodies and regulators continue to work on refining the framework, participants can usefully spend this time preparing for upcoming changes. The window for pushing back on regulation and extending deadlines is closing fast.
In its place a window of opportunity to steal a march on competitors is opening up. The move to electronic exchanges is likely to increase the market share of FX options and dramatically increase traded volumes – as happened to FX markets. Perceived risks will diminish, more corporates are likely to shift their hedging strategies from futures to options, and simplifying execution will open up the market to more non-traditional players. However, the advantages of early adoption will only be available to trading firms that get their own processes and systems in order.
Banking Technology.
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