NCFX Currency Options Cut: Mitigate uncertainty and increase automation

With the NCFX Currency Options Cut, NCFX publishes live official benchmark price updates that are used to determine the underlying market ‘cut’ rate for currency option expiries. We created the product to improve transparency in the options market for the benefit of all who belong to the network. Starting in 2020, following successful product pilots with two electronic options venues (Digital Vega and SpectrAxe), clients on both the buy-side and sell-side are now using the rates to expire options. With our product pilot now complete, we are looking to role out the NCFX Currency Options Cut more widely.

By simultaneously providing both sides of an option with an independently determined benchmark price, the NCFX Currency Options Cut eliminates uncertainty and the scope for dispute over whether a currency option will be exercised or has expired out of-the-money when the option strike-price is close to the prevailing market rate. By mitigating this ‘pin risk’ at expiry, trade counterparts can accurately hedge open positions and automate the expiry process through to clearing and settlement.

An NCFX Currency Options Cut is declared every good business day for 84 contracts. Currently, coverage includes cuts at Tokyo 3:00pm, Warsaw 11:00am, Budapest noon, London noon, New York 10:00am and New York 12:30pm. In 2023, we will add more currency pairs, such as ILS and precious metals.

The product is available real-time over multiple connection protocols to feed different parts of subscriber operations. For the lowest latency, the live options cut price is available in a machine-readable format via FIX API or WebSocket connection that can be established via Cross-Connect or through the public internet. This feed can power expiry software directly, thereby removing the need for human intervention. The cut rates can also be made available on demand to call in RESTful API, Graph API (as of 2023) or as a call through the NCFX SFTP server.

The NCFX family of Spot and Forwards FX mid-rates are registered Benchmarks under Regulation (EU) 2016/1011 and authorised by the FCA Part 4A of the Financial Services and Markets Act 2000.