Jeffrey Wecker is President and CEO of Lime Brokerage, which recently launched high-speed options execution to complement its high speed equities and futures trading. He spoke with Sarah Rudolph about the new options platform and the importance of high speed technology in the options marketplace.
Q: How long have you been with Lime?
A: Since November 2008.
Q: Before the launch of its new high-speed options execution platform, did Lime trade options at all?
A: No, this is a new product. We’ve pre-launched, so we’ve been trading the last two months, but we’ve been in an evaluation program, ironing out the last of the issues. We are now fully live. We have a full options product suite: market data: both OPRA and direct feeds, as well as connectivity to all the U.S. options markets for execution.
Q: Why launch now? Is this something you had been talking about for a while?
A: It’s been in the works for over a year. The options market has seen very strong growth over the past year. It’s a real opportunity. We’ve pre-marketed and identified a strong opportunity not only from our own client constituency, which tends to be black box equities trading firms, but also we pre-marketed to a lot of volatility market makers and opportunistic options traders who said the speed of the options market has put greater demand on their need for infrastructure.
Q: Is there as great a need for speed now in the options world as in the equities world?
A: We certainly believe so. When I spoke to a number of volatility traders in preparation for this launch, they told me that a greater portion of their new investment dollars each year is going to just maintaining the necessary quality in their connectivity. I would encourage any firm to look at their investment in connectivity and consider instead Lime’s platform. We can do it better and cheaper than just about every player in the options market. We’re faster into the market and we deliver a more stable, reliable service both in availability of the service as well as latency.
Q: What enabled you to create such a fast options platform?
A: We’re arguably the fastest broker in equities, and we’ve brought our ten years in equities into the options product we’re offering.
Q: Your press release mentions that the platform has “dark fiber connectivity.” What is that?
A: It’s the fastest telecom connection you can buy today in a marketplace. Dark fiber specifically refers to fiber optic connectivity between where our technology is located and where the options markets are. All of our direct market access is through dark fiber, so the message transfer happens at the speed of light, as opposed to sending messages through copper wire, which is much slower than the speed of light.
Q: Why is this crucial for volatility traders in particular?
A: Speed into a market is valuable because if you see a quote and want to put in an order, two things are very valuable: are you getting the quote as fast as you possibly can, and do you have a sufficient response in your order? There is no substitute for being the first to market with an order or a cancel request or a change order.
What’s been happening in recent years in options is that only the biggest firms have been able to sustain the infrastructure to have the lowest possible latencies into the options marketplace. As more and more new options markets have launched (there are currently eight, with C2 coming in October), the necessity of having state of the art connectivity to the options markets has gotten more and more accepted. Because of this, the larger firms that trade options have been crowding out the smaller firms that trade options because they just beat them to the opportunities. Our product line is designed to democratize the infrastructure that only the largest options firms currently have, so it is available to every participant in the market.
Q: You mentioned the proliferation of options exchanges, including the imminent launch of C2. I saw you quoted saying that you expect consolidation in the markets to develop soon. Can you elaborate on that?
A: That quote sounded more radical than I intended. The context was that I was asked whether I thought the number of options exchanges in the U.S. today is sustainable long term. What I said was I thought the case for fragmentation in the near term was still being made by different exchange operators. However, it’s hard for me to believe that longer term the pace of fragmentation will continue. Longer term it’s likely there will be winners and losers and that will eventually force a period of consolidation. That quote was taken out of context.
Q: On Lime Brokerage’s web site you call yourselves a “neutral agency brokerage”. What is that?
A: We’re an unconflicted agency broker-dealer. We only operate as agent, and we do not internalize any order flow, nor do we operate a dark pool. Our interest is delivering the very best execution to our customers.
Q: What factors enabled Lime to develop such a high speed platform for your equities trading in the first place?
A: We hired the best engineering team we could find and we invest heavily to sustain our position of excellence.
Q: Any thoughts you want to leave us with?
A: I can’t underscore enough how significant our launch of options execution is. It is really capturing our fullest attention this week.