electronic trading

U.S. exchanges face tough times

Jim Kim — Thu, 10 Jul 2008 15:30:47 -0400

There was once a day when we looked to the price of a seat on an exchange as a barometer of the exchange's health. Indeed, Wall Street's health. That seems like a long time ago. Now, we're more likely to simply check out the stock price. Unfortunately, NYSE Euronext and Nasdaq OMX have been tanking of late. Both are down about 50 percent from the start of the year, Business Week notes. The trading volume surge that accompanied the credit crunch has leveled off in a big way. If a true bear market sets in, volume could fall even more. Both companies have worked hard to diversify their sources of revenue, but not to the point that they can offset a big revenue hit from trading volume. The future is thus still an open question. How they grapple with the on-going trend toward electronic trading remains the biggest issue. We'll have a lot more to say on this later.

For more:
- here's the Business Week article

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Options market to follow equities to fragmentation?

Jim Kim — Sun, 08 Jun 2008 10:36:46 -0400

We've noted before that the development of the options market has mimicked, in key ways, the development of the equities market. In both cases, key drivers recently have been decimalization, tighter regulation, more electronic trading, greater competition at the exchange level and, of course, soaring volume. So is the options market heading for the same sort of fragmentation about to hit the options market? And if so, how will the industry respond? IDD notes that we are witnessing the rise of algorithmic options trading. We're also seeing more off-exchange automated execution venues. Sound familiar? In general, there's concern about how the technology will keep up with the volume and demand for better trading and clearing tools.

For more:
- here's the IDD article (for FierceFinance readers)

Once again, the future of the specialists

Tue, 15 Jan 2008 06:59:54 -0500

We've been among the many voices noting that traditional NYSE specialists seem to be toast. In this era of electronic trading, their value had been sorely reduced to that of small, retail orders that need to be worked. But the reality is that the NYSE would like to shift their role to that of a more NASDAQ-like market maker. That is, they would not enjoy the benefits of controlling order book information--that is supposed to be public--but would still enjoy some advantages. Their responsibility for providing liquidity in times of crisis would need to be spelled out, even though no one sees them as a real source. To make all this happen, according to Financial News Online, the NYSE has hired Todd Abrahall, who will work with NYSE specialists and figure out a way to preserve their lives. In an indication of what's to come, the NYSE has bought Wombat Financial Software.

For more:
- here's the Financial News Online article
- here's an article on the Wombat deal

Electronic trading startups are hot

Wed, 08 Aug 2007 06:59:55 -0400

Financial service firms, especially those that trade actively, have long been a hotbed of IT activity. To hear a lot of executives talk about it, it's like a souped-up arms race. You need an arsenal that is constantly updated, faster than the rest. Otherwise, the other guys have the advantage. The rise of Reg MS and Miffed, which promote electronic trading, is expected to lead to a surge in market data that investment firms will need to keep up with. If you're a hedge fund, you've likely been inundated with vendor calls as of late. Unsurprisingly, startups with a perceived hot technology are in vogue right now. Automated Trading Desk and FX Solutions are two that recently announced private equity investments, according to Wall Street & Technology. Other deals are expected. There are lots of hot areas, from trading to reference data management. We'll see some winners bubble up. Of course, the top investment banks are at work on their own solutions as well.

For more:
- here's the Wall Street & Technology article

NYSE launches bond platform

Mon, 23 Apr 2007 20:01:34 -0400

A new electronic bond market is the NYSE-Euronext's latest attempt to diversify a bit out of equities and a reminder that not all the focus is on overseas expansion. The idea is to bring the benefits of electronic trading to retail investors who want to trade bonds. The new platform, based on Arca, will offer live, anonymous trades for NYSE-listed company bonds. The only issue is whether the retail market can generate the kind of volumes the market needs to be successful. Small orders account for three-quarters of the transactions in corporate bonds but only 2 percent of the dollar volume. So the issue will be how quickly the exchange can scale the new service up. It does not seem like the new system is optimized for large orders. So the institutions lack a good incentive, except maybe when they have a reason to execute small trades.

For more:
- here's the Financial Times article

SPOTLIGHT: Electronic Forex Trading

Wed, 11 Apr 2007 20:01:32 -0400

It's hard to argue with the logic of electronic trading, which seems to be the future of every market. The latest example comes from the forex market, where half of all buyside trades are now electronic, up from 30 percent the year before. Article

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Hedge funds soar in Asia, bubble building?

Wed, 21 Feb 2007 19:01:38 -0500

This is pretty amazing: In just two years, the share of trading volume in Asia accounted for by hedge funds has grown from 5 percent to almost 25 percent. Commissions accounted for by hedge funds are also at about 25 percent. The rise of hedge funds in Asia may usher in a new era of trading. For one thing, these funds prefer electronic trading, and many think we'll see greater adoption region-wide. This is an opportunity for U.S. exchanges and their Asian partners, the TSE in the case of the NYSE. These funds represent a lot of liquidity, and it remains to be seen what will happen if the markets stagger, which is hardly inconceivable. This may be "hot" and it might quickly find its way to another part of the globe--we'll see. We saw this back in the late 1990s currency crisis.

For more:
- here's a brief from Financial News online
- more hedge fund news

Leo Melamed, an options industry legend

Mon, 08 Jan 2007 19:01:34 -0500

Frankly, the New York Stock Exchange and the Nasdaq get all the attention. But few can disregard the phenomenal success of the derivatives markets in Chicago. The Chicago Mercantile Exchange in particular has become a true financial powerhouse. A lot of credit should flow to Leo Melamed and his successors. They really pioneered the concept of electronic trading, even in the face of surly floor traders, and were actually the first U.S. exchange to go public. The CME's stock has been on a tear ever since. Derivatives aren't quite a household product. But they are closer to that status than ever before. All in all, Melamed is an interesting figure. He could have easily been a dinosaur, but he chose to change with the times.

For more:
- here's a Fortune profile

Update on the NYSE's hybrid system

Tue, 05 Dec 2006 19:01:36 -0500

Is this the final nail in the specialist system's coffin? The NYSE has received approval to add all its stock to its hybrid system, which means that all NYSE-listed stocks will be available for electronic trading. Customers can still choose to go through the specialist system if they think it can get improved prices. This is an important step, as the Nasdaq has been nibbling away at NYSE-listed-stock market share. One question is how fast all-electronic volume will rise, which is another way of asking how much volume the specialists will retain. This is an open question. A related issue, much broader, is how much volume will the big banks keep among themselves. These issues are still very murky right now. But you have to give the Big Board credit for moving quickly in the John Thain era.

For more on the NYSE:
- here's an update from the AP