Electronic Algo Execution Competition Poised for Unique Opportunity

John Lothian

John Lothian

Executive Chairman and CEO

We made a factual error when we published the story about Striker, the new options Algo execution product from Quantitative Brokers (“QB”). QB’s Striker was not the first product to offer electronic algo executions. RVAssets has been around since 2014 offering exactly that, though not as an agency broker like QB. Both are poised for a unique opportunity to grow as a result of the temporary closing of the trading floors.

RVassets, Thomas Fitch and his co-founders saw opportunity in the electronic option listed derivatives markets after the 2008 financial crisis and response.

With the “temporary” closing of the trading floor in Chicago at the CME Group because of the COVID-19 outbreak, solutions like RVassets’ and QB’s are presented with a greater opportunity to garner new business.

Since RVassets started in 2014, Eurodollar options have moved from 20% electronic to near 50% by the end of 2019. This migration to electronic has been made an imperative as over 90% of the volume is now electronic in Eurodollars and Treasuries, with the rest being block trades, Fitch said.

He also said that in the last 4 to 5 weeks, as the market moved nearly all electronic, more data about trading size and activity has emerged which helps firms like his.

Nearly 50% of the Eurodollar trading volume, Fitch said, comes from about 10 trades a day. Big Eurodollar players and their trades previously executed in the pit are being exposed via electronic trading. 

Fitch also said that most of the new business that RVassets is bringing to the electronic option markets, mostly in Chicago, is new business, and not pit business being executed differently. 

However, with the floors closed, firms like QB and RVasset are going to get a foothold on some former pit business, which will make it harder for the pit to win back business once customers get used to using option algo execution tools from firms like QB and RVasset.

The longer the pits are closed, the more clients will find the advantages of services like this. There is a lot of room for growth for electronic execution algorithms, not just for QB and RVA, but for others as well.

The new data coming from the market forced into an electronic environment will give traders new ideas and perspectives about the whole market, not just the part they could see before in the bifurcated pit and screen set up.

This information is a great growth opportunity for the market and the exchanges behind it.

 

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