Low Latency News

As lead traders in large corporate investment firms and banks begin look for more control over their future, many are taking the leap to start their own Proprietary Trading Firms.  Once such newly formed High Frequency Trading firm, came to CFN Services with a challenge. Their goal was to be up and trading within a 30 day window. They had been working with many vendors to integrate a comprehensive solution that would optimize the trading ecosystem from pre to post trade execution.  As they dealt with contracts, vendors and many headaches, they requested of CFN to make this all easier so they could focus on their goals, profitability for their multi-asset trading strategy

Solution:

CFN FAST Platform (Financial Application Services Trading Platform) provided the value to this firm that they required, yet the flexibility and control they insisted on. Through the module approach offered by CFN Services, the trading firm was able to pick and choose the areas they wanted to keep in house and areas they wanted to outsource. They did not need to question their buying decisions as CFN is host/carrier neutral picking the best solution for each specific client. CFN also gave them peace of mind by providing the firm a few solutions with the pros and cons of each clearly articulated. The trading firm also did not want to lock up cash in their trading platform, and with CFN Services was able to implement their full solution with litter capital outlay.

Outcome:

Utilizing CFN expertise and suite of products, this firm was able to greatly reduce the volume of partners and vendors they needed to negotiate and sign contracts with.  This alone provided them the ability to free up to 25 hours a week of the pre-start up time to focus on the core area of the business.  The goal to be up and trading within 30 days was accomplished, without divulging proprietary information. The trading firm acknowledged that CFN helped accelerate the development cycle and allowed then to strengthen their place in the market

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A year after becoming an equities exchange, BATS plans to grab a
chunk of the options market through aggressive pricing that appeals to
some of the same automated liquidity-providing firms that helped make
it the third-largest exchange operator in U.S. equities.

“Compared
to our competitors in this space, we’re lean, based on our direct
monthly expenses and capital outlay to get into options, so we’re
operating on a different scale than other exchanges,” said Joe
Ratterman, CEO of BATS Exchange. “Because of that, we can be
aggressively priced.”

BATS Options will have maker-taker
pricing in a price-time market model. The exchange hasn’t yet announced
its pricing, but will target all options classes, and not just those
quoted in penny increments, Ratterman said. He does not think the
exchange will offer different pricing for penny-quoted and
non-penny-quoted options, but noted that the final decision hasn’t yet
been made. In equities BATS has sometimes used inverted maker-taker
pricing to attract volume.

“If history is any guide, they’re
very aggressive with their pricing metrics, and will enter the options
space with a pricing structure that will undercut the competition and
will attract interest and competition from trading entities,” said Andy
Nybo, a principal at research firm TABB Group.

BATS’s
ambitions for options are aggressive. “We wouldn’t be going into this
market if there wasn’t a big opportunity for BATS to come in, make
improvements and gain market share,” Ratterman said. “U.S. equities was
one of the most competitive markets in the world and we managed to do
very well when we broke into that space. There’s nothing to keep us
from being successful in options.”

Ratterman expects BATS’s
eventual options market share to equal its share in equities. In June,
BATS accounted for 10.7 percent of equities volume. BATS, formerly an
ECN, opened for trading in January 2006 and became an exchange in
August 2008.

BATS intends to build its options market by
appealing to a range of investors, including institutions, retail
brokers and market-making firms. “We’ll attract as much diversity [of
flow] as possible,” Ratterman said. “We have a fair and open model in
the equities world and will have that in options.”

But the
exchange’s strong suit is its appeal to automated market makers. “The
performance metrics of our system have traditionally appealed to
automated market-making firms because of the low-risk characteristics
of their trading on our markets, and the consistency and performance of
our system,” Ratterman said. “It’s likely we’ll have as much influence
on the options side.”

TABB’s Nybo notes that BATS’s reputation
for having a strong technology platform and low-latency infrastructure
will boost its prospects in options. “They are looking to attract
quantitative trading firms using low-latency, high-frequency strategies
and those that arbitrage fleeting price discrepancies,” he said.

BATS
will file the rule set for its new market “shortly,” according to
Ratterman. He said the launch of BATS Options is targeted for January
or February of next year, subject to approval by the Securities and
Exchange Commission.

BATS Options will join a growing
marketplace populated by seven options exchanges. Last month, 296
million equity options contracts changed hands, up 5.6 percent over the
previous June’s volume. The industry traded a record 3.3 billion equity
options contracts in 2008, an increase of 26.7 percent over 2007’s
record volume. This year is on pace to exceed last year’s volume.