Complex options strategies can now be more easily attempted through Winnipeg’s ICE Futures Canada exchange.
Brokers are now able to post both User-Defined Spreads and Request For Quotes through the ICE’s computerized system.
It will allow users of the market, which is home to North America’s canola futures contract, to go beyond the simple options contract strategies.
The UDS system will allow users to create trading strategies, including ratio spreads and delta-hedged options. The UDS offering can consist of up to nine legs and two hedged legs.
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Previously brokers could not move far beyond simple options. They could execute rudimentary strategies, but anything complex couldn’t be done in a single product.
“This way, the whole strategy can be traded as a package,” said ICE Canada chief executive officer Brad Vannan.
When one of the complex UDS mechanisms is created, the ICE system will send a message to market participants alerting them that it is there. These products will only live the length of the trading day in which they are created, and would need to be recreated if the provider wants to offer them again.
The RFQ system allows hopeful traders of products to advertise their interest in a specific vehicle in a specific market. They can request a quote for a product that isn’t currently offered. The system will publish the request inside the ICE system, allowing providers to consider whether to make a bid or offer.
Both the UDS and RFQ functions will allow market users to make a market for specialized derivatives and the exchange hopes it will encourage more options trading.
“It’s particularly handy in thin options trade,” said Vannan.
“We’re hoping this makes it easier for options traders to participate in the market and that options become more liquid.”
A trader who had briefly looked at the ICE’s participant notice, which announced the new functions would begin Nov. 3, said some traders would find the UDSs and RFQs valuable.
“It’s just the ability to enter complex option combo orders and have the computer execute them for you,” said the trader.
“It allows you to create a market for that.”
