An interview with Thomas A. Wittman, Senior Vice President of NASDAQ OMX and Head of US Options
Thomas A. Wittman is Senior Vice President of NASDAQ OMX and Head of US Options, which is part of NASDAQ OMX Group’s US Transaction Services business. Based in Philadelphia, PA, he manages the NASDAQ OMX PHLX operation and oversees the day to day responsibilities for both PHLX and NOM markets. He spoke with JLN Options editor Sarah Rudolph about Nasdaq OMX’s growth strategies, new products, and the Qualified Contingent Cross. [See related story on ISE in Lead Stories]
Q: How long have you been with the exchange?
A: I started at the PHLX in March 1987 – in the middle of the ’87 crash. [NASDAQ OMX acquired the Philadelphia Stock Exchange in July of 2008.]
Q: What was that like, starting out at an exchange during the crash?
A: Technology was not very advanced then. There have been lots of industry changes since. I started as a software developer and wrote a lot of their electronic order processing. I worked on the technology side.
Q: What got you interested in the trading business?
A: Technology is such a big part of the evolution of trading on the exchanges. When I started here we had an equity trading floor. We still have the options trading floor. I was more interested in the business side, and as we built technology to solve business problems, I wanted to understand the business side better. Some of our early technology missed the mark from a requirements standpoint. Traders didn’t have a lot of time to tell you what they required, how they wanted the system to work. So I wanted to spend more time learning about how you trade.
Q: What is Nasdaq OMX Options’s strategy for maintaining growth?
A: A lot of that revolves around technology as well. We’re going to continue to invest in our technology platforms. Speed is crucial, of course. We run two different exchanges, NOM [Nasdaq Options Market] and PHLX [formerly the Philadelphia Stock Exchange]. On the NOM side, we’ll take a lot of the PHLX technologies we’ve built and move them to the NOM platform, calling it NOM 2.0. That will give market makers the same interface on the NOM that they use on the PHLX platform. It also has a bulk quoting interface.
On the PHLX side, we continue to develop and expand our features and functionality for complex orders.
Q: Any new products in development?
A: Yes. We will launch new alpha indexes on Friday, April 22. That’s part of the plan to develop new products. PHLX was always known for its development of new proprietary indexes: the OSX and the gold and silver index, for example, and the semiconductor index (which is always quoted on CNBC as “the benchmark semiconductor index.)
We got away from developing new products somewhat in the last couple of years, but now we are again developing some new products that will allow investors to look at the market in different ways.
Q: How do traders benefit from the alpha indexes?
A: It’s another way to look at an option. It takes a single stock and trades the alpha component vs. the index. A popular one has been the Apple vs. SPY alpha index, which measures the performance of the single stock vs the ETF (SPY) total return performance, comparing the return performance of the previous trading day. We have been calculating that index for a few months and will list options on the index on Friday.
The symbol is AVSPY.
We have 19 different indexes we currently calculate and will have options trading on those.
Q: And you will add more?
A: Yes; it is very easy to add more. That depends on the interest in the products, of course. But you can trade almost any pair you can dream up of a stock vs. an index or an index vs. an index, looking at the relative performance of one vs. the other. Today the AVSPY index is up $1.35 and the Dow Jones Index is down 110 points! So Apple is performing superior to the overall market.
Q: Nasdaq options just decided to offer the qualified contingent cross (QCC), which the International Securities Exchange (ISE) introduced to some controversy. What led to the Nasdaq’s decision to embrace QCC after it had previously objected to it?
A: I think generally the QCC is not good market structure; however, ISE has gotten approval and without us having same type of functionality, my customers and brokers can’t execute the same type of trades. Right now we’re operating at a disadvantage to ISE. So we are seeking approval for the same functionality, although I don’t agree with it. We’ve been forced by the competition to accept it.
Q: I also read the Nasdaq is interested in developing a QCC specifically for the floor. Does that defeat the purpose, since I recently spoke with Gary Katz of ISE who said that QCC is basically a way of doing electronically a type of trade that exchanges such as PHLX have been doing on the floor?
A: That couldn’t be further from the truth. A QCC order has certain attributes: It must be for 1000 contracts or greater, it must be on or between the NBBO, and it must put customer interest on the book at the bid or offer. It is tied to a stock. Today my brokers get these orders and bring them into the trading crowd. By rule, if there is interest in the crowd or among the specialists, they can trade a piece of the order. With a QCC, the order is not exposed to the crowd and trades without any auction process.
Q: What would you say to critics of the “dividend trades” done on the PHLX (of which the ISE has been most vocal)?
A: Actually I don’t think they are that controversial. It depends on who you talk to. These trades have always taken place – on PHLX, on the P-coast, Arca and the CBOE. For many years we never heard any complaints about these trades, but due to some shifts in market share they become annoying to certain exchanges. They’ve always taken place as long as the floor has been here. They take place on floors, there is risk in the trades and there is economic value because the members pay fees.
Two weeks ago there were some dividend trades, and the options volume for those two stocks was way higher than on a normal trading day. That might be confusing to an investor, but for other exchanges to have an issue with those trades I think is a bit silly.
Q: What is the biggest question in your mind confronting the options industry today?
A: Options is a very competitive place, which is a good thing. It will force us all to be savvy with pricing and functionality and with service to the customers. I see a real opportunity with Nasdaq because we have great technology and great people. We look forward to the competition in the coming months.