Simplifying Complex Order Books

Terry Flanagan

High levels of complex order book activity, coupled with growing market fragmentation, has led to Complex Order Book strategies becoming increasingly important for their ability to broadcast across multiple exchanges.

However, generating actionable trading information from COBs has been a challenge due to the fact that traders post complex orders on the books as a package, quoting a single net price, and those complex orders come to rest on one of the seven COBs operated by U.S. options exchanges.

“Spreads don’t have standing in the marketplace, meaning they come in as one order as opposed to 2 or 3 or however many separate legs the order might have,” said Randal Scharringhausen, chief operating officer at Eesat, a provider of a single-feed, data normalization of the seven COBs. “Depending on where the orders originate, they go to one of the seven complex order books and they reside on that book until someone interacts with it and it trades.”

Eesat’s recent analysis of exchange volumes has shown that exchanges generate close to 40% of their flow in complex orders, with the majority of trading occurring at mid-market prices.

Eesat provides traders with COB trading tools and the ability to view multiple strategies simultaneously and route orders to an exchange for execution via OptEx, its high-touch spread-trading software, and through its Fuse and Fuse+ data feeds.

“Each complex order book on each exchange has its own languages,” said Scharringhausen. “What Eesat does is it takes all of those languages and distills them down to one language.”

Ordinarily, traders would need to subscribe to data feeds from the various exchanges and writer software to normalize the data to create one common feed. “Fuse and Fuse + gives you a single language that shrinks the capacity dramatically of the data that they’re actually bringing in which has a lot of implications for hardware usage, etc.,” said Scharringhausen.

Bank of America Merrill Lynch is the latest and largest broker to offer its own clients a range of Eesat OptEx tools, reflecting a growing need for firms to provide traders with access to enhanced tools for trading complex orders electronically.

The connectivity with OptEx is part of the firm’s ongoing investment into enhancing its execution capabilities and delivering a comprehensive range of trading tools to clients, according to Gary Hunt, director at BofA Merrill Lynch.

“We are committed to providing bespoke solutions to help our clients find unique opportunities and improve their trading alternatives,” Hunt said in a statement. “We are delighted to integrate OptEx into our suite of trading solutions.”

Featured image by Bombay_foto/ Dollar Photo Club

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