Futures-to-OTC Transition Challenges Prop Traders

Terry Flanagan

Chicago-based proprietary trading firm Geneva Capital isn’t fazed by the multiplicity of assets that it needs to trade. Multi-asset class trading has been a staple of the prop trading industry for a long time, Robert Creamer, president and CEO of Geneva Trading, told Markets Media.

“I don’t know of a professional trading firm like Geneva that’s not a multi-asset class trading firm,” said Creamer. “It’s more about how do you fold in in some of the new asset classes that may come online, maybe new exchange-traded swaps, things that are happening in the SEF world.”

Creamer will speak at Markets Media’s Chicago Trading & Investing Summit on Sept. 23.

Geneva Trading, which employs 150 people, used technology to compete in almost every asset class that’s traded on the screen.

The challenges going forward are going to be centered on margining of different products and getting margin efficiency and relief for different products.

“In terms of where we are today, there aren’t any new asset classes that really seem wildly interesting to me,” Creamer said. “It’s more about asset classes that are new to central limit order books and particular trades that are going to be new to the market.”

With the shift to electronic trading both volume and open interest on exchange-listed products has experienced exponential growth, with market participants benefiting from access to more liquid, efficient and transparent global markets.

The post-Dodd-Frank world of SEFs and central clearing presents unique opportunities and challenges for prop trading firms.

“It’s an exciting time to see how all this folds out and how people are looking to engage in SEFs and are working hard to make the new model work,” Creamer said. “That’s going to present new opportunities for lots of different people in the markets. But it’s going to take time. It’s not going to happen overnight.”

For Geneva Trading, interest rate swaps represent unchartered territory. “Certainly we followed those markets, but we haven’t had access to them because outside of interest rates swap futures, Geneva trades products that are cleared,” Creamer said. “We’ve never engaged in bi-lateral uncleared trading.”

Geneva was founded in 1999 on the premise that electronic trading would open global markets to more participants, new opportunities, and greater liquidity. The firm supports the futures markets and its exchange partners as a designated market-maker, provides liquidity and tight bid-ask spreads to allow market participants to manage risk.

Featured image via iStock

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