Best venue for FX options – Digital Vega

In the tumultuous early days of the pandemic, many foreign exchange options traders found solace in the human hands of voice traders to execute their orders, but soon thereafter they realised that electronic execution remains the most efficient and reliable way of optimising their FX trading. 

“In March last year, our volumes took something of a hit,” says Mark Suter, executive chairman at Digital Vega, a trading venue specialising in FX options. “But ultimately it has played into our hands as more people realised that doing business electronically is actually safer and easier to achieve.”

Indeed, when the FX market regained its composure, the venue began to see a significant uptick in client sign-ups, spurring a surge that continues to this day. In the last six months alone, Digital Vega’s client pipeline has trebled.

The platform’s success is far from a novelty. From what began a few years ago as a single-instrument solution operating in a single time zone, the London-based trading venue has morphed into a multi-solution provider present in all of the world’s major FX centres.

The venue recently broadened its geographical reach after opening an office in the US earlier this year, following strong growth in its Singapore-based Asian operations. 

“We’ve now become a truly global business,” Suter says. “Over the last year to 18 months, we’ve transformed ourselves into a much bigger organisation that covers a much broader spectrum both in geographies and products.”

From the outset, Digital Vega’s offering was focused on bringing the FX options space into the digital age. It began doing so by developing a venue, dubbed Medusa, on which the most active banks in the FX industry could trade FX options electronically with a wide range of clients and at the same time, unveiling concepts such as expiry automation, an idea that had hitherto been considered wishful thinking. In short order the firm transformed what was once entirely a manual process and a hindrance to the amount of business FX options traders could carry out, into what is now a fully automated system with multiple expiries conducted every day.

Cognisant that other legacy processes used in the industry were still very manual, Digital Vega decided to enrich its FX options offering with electronic pre-trade, post-trade and workflow management solutions.

Many of these were included in the Hydra platform Digital Vega rolled out in 2020 that Suter dubs “a complete solution in a box”. Hydra was designed for executing vanilla and exotic FX options, but also for managing the up- and downstream risks associated with these trades as well as structuring scenarios, running analytics, generating reports and conducting general lifecycle management.

“Hydra has become a front-office tool for discretionary asset managers, private banks and regional banks, without interfering with their core banking and payment systems,” points out Suter. “The platform is rich with functionalities that allow the front office much greater flexibility in managing positions and risk in real time, optimising execution should they need to or run credit and risk reports.” 

But the firm is not resting on its laurels. As it considers other geographies to pursue, Digital Vega is actively expanding its product offering. The firm is currently building an electronic central limit order book for the interdealer FX option market, which it believes will cut major banks’ cost of trading the instrument by up to 80% compared with voice trading, while compensating market-makers for liquidity.

And, through the partnership it concluded in early 2021 with Spark Systems, Digital Vega is set to broaden its offering in the coming months to also include FX spot, forwards, swaps and non-deliverable forwards.

“The partnership with Spark Systems is very complementary, culturally and across products and geographies,” explains Suter. “With FX options we started with the most difficult instrument, and I think we’ve done a pretty good job of it. The logical next step for us now is to add a cash-trading capability and offer a best-of-breed solution.”

“We didn’t want to build another spot platform or another aggregator; there’s so many out there it would not have been worth it. But Spark are well established in Asia, they have a large hedge fund and regional bank client base and have already white-labelled our platform. All in all, it’s a good partnership.” 

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