05.15.2014
By Terry Flanagan

Options Markets Go Algorithmic

Options market microstructure is evolving quickly, with 12 exchanges introducing multiple order types and sometimes-complicated fee tables. That places a premium on the ability to route orders to accommodate a wide variety of trading strategies.

“In the equity world, a router is about where to execute, and an algorithm is about when to execute, but in the listed derivatives world the boundaries are more blurred, because the ‘when to execute’ may actually be based on something completely different,” said Vishal Gupta, head of Volex Execution Services. “Routing logic is very important in the listed derivatives world, with all the changes, all different market models, and rules.”

Volex is the execution services division of Volant Trading, a listed derivatives market maker. “We’re building out the execution services business, offering services to clients who need to trade listed derivatives,” said Gupta. “We, for the most part, interface with broker dealers and we help them find the best technology for their orders.”

Volex is launching a high-speed liquidity sweep capability, called Take Out, that aggressively sweeps displayed and hidden liquidity, with sub-millisecond order processing times.

“In terms of speed is one of the fastest in the industry, if not the fastest, with some advanced logic for routing,” said Gupta. “The logic itself is branded Take Out, and the idea is that we use our logic to take out as much liquidity as possible, potentially even getting more than what’s on the screens.”

Unlike algorithms used in equity trading, which help to decide when to trade, Take Out is not about timing, but rather about how and where to post an order, what trading mechanisms to use, and what options contract to use.

“That’s where they’ve programmed in advanced routing logic,” said Gupta. “That means that the traders often can find what’s called size improvement. That is, there might be 500 orders presented on the screen, but what they really wanted is 1,000. With the Take Out option logic, they can find that additional 500.”

Volex is making its platform and the Take Out logic available through the REDIPlus EMS platform.
“We’re excited about this new relationship with Volex Execution Services,” said Goutam Nadella, chief product officer of REDI Global Technologies, in a statement. “By offering connectivity to Volex through REDIPlus EMS, we’ll provide users with cutting edge technology and a robust suite of options trading tools for all strategies.”

Added Gupta, “Traders can tell us how aggressive they want to be on a per-order basis by using a drop-down that’s available on all the front ends that are available on REDIPlus. That allows us to aggressively capture liquidity.”

Feature image via iStock

Related articles

  1. Agency broker moves beyond execution to offer a broader suite of services.

  2. Algorithms have become more prevalent in the spot FX market.

  3. Congress Unlikely to Act on HFT

    QB’s Algo Suite for futures market trade execution is also being co-located to HKEX.

  4. Breaking data silos is key to deploying automation beyond 'nuisance' orders.

  5. They can be used on quantum hardware expected to be available in 5 to 10 years.