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Video: Complex Foreign Exchange Options Not Ready For Prime Time

By Clip Syndicate
Trading forex options on registered U.S. platforms is a long-awaited step in making derivatives markets more transparent, but so far it has failed to take off. Rules became effective in October that required these trades to move to swap execution facilities, or SEFs. However, there is no established clearing-house for these trades, and with the additional paperwork and legal requirements needed to trade on SEFs, many market players are electing to stick with trading the old-fashioned way, that is, by telephone or on bank platforms. Commodities Futures Trading Commission rules require FX options and non-deliverable forwards traded between U.S. entities to be executed on a SEF, the designated trading platform for regulated derivatives. However, that requirement will not fully be in effect until these FX products can be cleared. At the moment, there is no entity that can clear FX options. Currently, the limited number of FX options traded on SEFs are being cleared and settled between counterparties.





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