09.15.2011
By Terry Flanagan

Equity Options Evolve

Technological arms race may have hit a ceiling

The world of exchanges and trading has evolved considerably over the last decade. Automation has become commonplace and latency is measured in microseconds. Infrastructure has improved and technology has become more accessible to smaller firms.

But the technological arms race may have hit a ceiling. Market participants are unsure if there is still value to be extracted from low-latency trading. Traders are beginning to question if it’s worth going after a few extra pennies all the time.

“In the options area, we’re not really seeing a huge demand for ultra low-latency solutions,” Carrick Pierce, chief executive of Derivix, told an audience at the FIA/OIC Equity Options Conference in New York. “The institutional front end community has other issues that are more important now. Access to algos, the speed of getting to market – that sort of thing,”

While trading firms dealing in equity options have slowed their pace of growth, the exchanges continue full speed ahead. New innovations in the electronic marketplace, such as ISE’s QCC order type and back end upgrades at NYSE Arca and AMEX, remain the focus of most exchange operators.

Those worried about recent consolidation vis-a-vis exchanges need realize that plenty of options remain and competition remains healthy.

“Going from like eight to six exchanges isn’t going to hurt anyone,” noted Phil Pendergraft, chief executive of Penson Worldwide.

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