With the promise of faster trade executions and full transparency on hedging costs using OTC FX options, here’s a new regulated platform that could change your view of risk protection.
If you ever wondered if your FX hedging via OTC options was giving you real value, then perhaps there is room in your life for the Assure Hedge trading portal.
With traditional FX forwards often seen as “cumbersome” to execute and “restrictive” in use, Assure Hedge research shows that many corporates are under-hedged, says Barry McCarthy, CEO of the Dublin and London-based fintech. The final straw for some, he adds, is the addition by brokers of margin calls where, if a currency deal turns unfavourable on a sizeable hedge, it can hurt corporate cash flow.
The aim of Assure Hedge is to “democratise FX hedging through technology”, states McCarthy. With an on-boarding process that takes minutes, he believes all treasurers from small and mid-sized companies can now achieve real-time pricing and execution with complete transparency.
The centrepiece of the platform is its quote generator. An amount and a home currency and risk currency are selected from the six major tradeable currencies offered (with another 15 or so on the way). After the buy or sell option is added, sliders can be used to change percentage and duration of coverage, giving an instant quote; changing the sliders will help find the right pricing level. Once hedged, the treasurer is able to draw down the currency at any time.
The transparency of Assure Hedge pricing is provided by payment of an upfront premium, “so the worst downside is known from the outset”. Customers who are not keen on this will be pleased to hear that the firm is also exploring risk-free ways to spread premium costs.
Operating on a matched principal broker basis, although the treasury counterparty is effectively Assure Hedge, the market risk during trading belongs to the trading entities providing the options. Whilst not knowing the underlying counterparty may be an issue for some under treasury policy, McCarthy says “there is a lot of protection afforded to our customers under law.” With Assure Hedge regulated by the UK Financial Conduct Authority (FCA) it is deemed to be “a safe counterparty” with Tier 1 reserves.
Assure Hedge will perhaps also raise a few concerned treasury eyebrows because it is an early-stage fintech. “We spent the last six months working with the FCA in the UK as part of its regulatory sandbox programme,” assures McCarthy. With the programme allowing businesses to test their offerings with real customers under the close supervision of the national regulator, the firm is delivering a market-tested and fully-compliant product.
Sustaining development in the real world is now being directed by target-customer feedback. “One thing we are hearing a lot of demand for is a robo-treasury advisor,” says McCarthy. Now in the pipeline – with delivery possibly in the next 12 months – it will use artificial intelligence (AI) to analyse information on the customer’s risk appetites and objectives, correlating that in real-time with market events to provide previously unseen opportunities.
As part of the development roadmap, a second route to market is planned, with Assure Hedge partnering with FX brokers who wish to offer the platform on a white label basis to corporate clients. As the concern around the mis-selling of options is ongoing, many major banks have pulled back from this market, explains McCarthy. With trading on the platform entirely self-directed, he believes that the broker community stands to gain extra transaction-based business, as treasurers benefit from faster trade execution and pricing transparency on OTC FX options.