Nasdaq’s Greg Ferrari on using AI in derivatives and Nasdaq’s new order type

Sarah Rudolph

Sarah Rudolph

Editor-in-Chief

Greg Ferrari, vice president, exchange business management at Nasdaq, was one of the presenters on a panel at FIA Expo 2023 called, “AI in Action: Use Cases in Derivatives.” He sat down with Sarah Rudolph of John Lothian News at Expo to talk about the panel and how Nasdaq is using AI, especially regarding options. 

The panel was a showcase in which Nasdaq demonstrated its use of AI in the capital markets, highlighting three areas of focus: Liquidity, transparency, and integrity, Ferrari said. Nasdaq recently received approval from the SEC on an order type that uses AI, called “dynamic midpoint extended life order.”  In a laboratory evaluation, Ferrari said, the order type improved fill rates by 20% and markouts by 11%.  The order type is “the first of its kind,” and Nasdaq is working with regulators to explain how this technology works, he added.

In the U.S. options markets there are more than 1.5 million strikes, and that consumes a lot of bandwidth, Ferrari said. Nasdaq is using AI to bring the “right products to the market to ensure capacity and resilience,” he said. It is also using AI to remove bad actors from the markets – retraining models to “stay one step ahead of nefarious participants,” he added. 

Ferrari said Nasdaq wants to democratize access to AI, and sees it as being particularly applicable to retail investors to help them analyze the market and build on strategies. 

He also talked about some trends in options trading, such as seeing more yield enhancing strategies as well as more ETF product creation using short-dated options.

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