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A New Era of Change at the NYSE

May 30, 2008 @ 10:15 AM By Cristina McEachern,

Larry Leibowitz, executive vice president, head of U.S. markets and global technology at NYSE Euronext Group, was a refreshing keynote at this year’s TowerGroup Financial Services Business & Technology Conference in Boston.

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Is Open Source Threatening the Status Quo?

May 20, 2008 @ 02:01 PM By Ivy Schmerken,

A new software upstart Marketcetera contends that its open source platform for building automated trading systems is an alternative to the likes of EMS providers Portware and Flextrade. Marketcetera's CEO Graham Miller (who previously worked at hedge funds where he developed automated trading systems) regards these platforms as proprietary and calls them restrictive and inflexible as well as expensive.

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Five Keys to Running a Successful Global ATS

May 20, 2008 @ 11:45 AM By Cristina McEachern,

Recently I sat down with Instinet’s Co-CEOs Fumiki Kondo and Anthony Abenante to get an update on their first year on the job and what Instinet has coming down the pipeline.

But I was also interested in finding out their vision for the global ATS or MTF market. With the success of Instinet subsidiary Chi-X Europe and the expansion into other global markets—Chi-X Canada and Chi-X ATS Australia already announced—we wanted to know their thoughts on what it takes to successfully build and run a global trading platform.

The consensus puts the European market about seven years behind the U.S. space so ATS are beginning to gather steam and attract trading flow in post-MiFID Europe. For the first quarter of 2008 Chi-X Europe reported over 6.6 million trades and saw peak market volume climb to over 13 percent of total trading in FTSE 100 stocks on March 13, 2008.

As other ATS prepare to launch in Europe and beyond, Kondo and Abenante share their five keys to running a successful global ATS.

Instinet Co-CEOs Anthony Abenante (left) and Fumiki Kondo (right)
Photo by Stephen Aviano

#1 Add Value
Attracting order flow by adding value is also key, according to Abenante. “At the end of the day we’re bringing together people who hopefully will find an opportunity to trade stocks,” he says. “This is a market structure business, the way you add value is making markets more efficient. Whether that’s being faster, or smarter or cheaper—all of those are important. “

He adds that making Chi-X Europe's back end technology cheaper, relying on partner Fortis was a good way to add value for the end user ultimately. “Fortis provides our back end solution, which is about 70 percent cheaper than the incumbent solution. That should generate more volume as costs come down and markets become more efficient it should bring in more trading. At the end of the day more stock you trade within the spread, the spread tightens and that’s good for markets,” notes Abenante.

#2 Provide a Consistent Experience
The success of an ATS is in large part due to the technology and therefore speed and cost, but Abenante also points to the customer experience as an important factor. “Providing a consistent experience for clients from an API standpoint globally—how they interface to the exchange should be consistent and the same types or order controls should be there,” he says. “It’s also important to minimize the burden on people to interface with you and make it as easy as possible for them to come in.”

#3 Know the Market
Anyone who has tried to enter a new market is all too familiar with the advantage having a local presence affords. “We’ve been on the ground in Europe since the 80s and in Asia since the 90s. We have relationships with the regulators and know what they’re looking for and we know the process,” says Abenante.

He also says that bringing in outside investors often helps further this local knowledge and helps enter new foreign markets. “It’s not just brining in trading flow and capital, it’s the intellectual capital, the knowledge of the regulators and how these markets exist,” explains Abenante. “That gives more of the color and helps us figure out how to navigate in these markets. It’s tough walking in to a country and saying ‘we want to be an alternative to the national exchange,’ you really have to tread lightly.”

#4 Make it Transparent
Obviously transparency is something all clients are looking for in their trading destinations and something ATS should keep in mind. “We definitely bring a general philosophy of openness. If you’re trying to sell a more efficient market, to not be transparent is a bit hypocritical,” says Abenante.
Kondo adds, “It’s important that everyone can come and play openly.”

#5 Emphasize Uniqueness
Kondo says that Instinet’s agency model is one way the firm differentiates its ATS offerings. “We don’t have any proprietary flow for example in our ATS’, its all natural flow,” he explains. “That’s one key of ours to differentiate the ATS – the agency model.”

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Equity Markets Play the Rebate Game to Win Market Share

May 6, 2008 @ 02:35 PM By Ivy Schmerken,

It's getting hard to keep up with the changes in fee structures emanating from U.S. stock exchanges and ECNs. Equity market players are changing their transaction prices left and right, offering higher rebates to liquidity providers or lower take-fees to those firms that remove liquidity.

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Derivatives Exchanges On a Tear

May 5, 2008 @ 12:26 PM By Cristina McEachern,

As equities exchanges face growing fragmentation and competition from alternative trading venues, the derivatives exchanges are seeing trading volumes jump as electronic trading permeates into these markets.

For the first quarter of 2008, many of the derivatives exchanges reported significant profit growth and volume increases as volatility hit the markets and risk management continues to be at the forefront.

The Intercontinental Exchange (ICE) reported net profit of $92.3 million with its futures exchanges seeing an increase of 39% in profit over the previous year. The ISE futures exchanges saw 62.5 million in contracts traded in the first quarter.

NYMEX also credited exponential growth in electronic trading for driving its profits for the quarter. NYMEX saw net profits reach $72.1 million, almost 30 percent more than the same period last year thanks for average daily volumes reaching 1.9 million contracts.

On the options front, big jumps were also evident as volatility continued to plague the markets. The International Securities Exchange (ISE) saw its average daily volume for options hit 4 million contracts for the month of April, almost 50 percent growth over the same period last year.
At the CBOE Futures Exchange, volume reached over 100,000 contracts traded for the month of April, up almost 150% over the same time last year.

The CME Group saw options volumes increase 16 percent to 1.8 million contracts per day as electronic options trading grew 23 percent, reaching an average of 275,000 contracts per day.

NYSE Arca Options saw daily volumes grow 36% in April. While derivatives trading at NYSE Euronext's Liffe saw a 34% increase in contracts traded so far this year compared to the same period last year. During April, more than 97 million futures and options contracts were traded, up 33 percent over the previous year.

At Advanced Trading we’re covering electronic trading in the derivatives markets more and more and this month we are seeking out providers of Futures Algorithms for our next Directory. If you offer algorithms for futures please be sure to fill out the online form at:

http://advancedtrading.com/directories/futures-algorithms/entry/

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R.G. Niederhoffer Capital Management (New York)
Roy Niederhoffer
President and Founder

You have to rotate your models more rapidly today than you used to. Models that used to work have stopped working with greater rapidity lately. I think that this probably represents the entrance of a large number of players into the hedge fund space in ... More >>