Traders Magazine Online News

Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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Is the adoption of electronic trading in fixed income on par of that in the FX sector?

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August 31, 2001

A Chinese Menu For Market Makers: New Systems for New Generation of Regs

By Peter Chapman

royalblue's Fidessa allows market makers to double, triple or even quadruple the number of stocks they trade. Traders stay on top of their most active names in a primary pad while most of their stocks are babysat by the system in a secondary pad.

The secondary pad is run as much on auto-pilot as Nasdaq will allow. It will keep tabs on the difference between a trader's quote and the NBBO.

It will monitor which orders are on each side of the market. It will reflect his orders in his quote. It will automatically move away once an order is filled.

What it won't do is automatically refresh the quote to the inside. That's against the rules. Nasdaq doesn't want computers trading with computers. "You can't quite have a totally automated trader," said product developer Mark Ames. "Although, we'd love to write one." The point is to allow the trader to focus on the meaty side of the business, adds Ames.

That is where he will add value. The rest is mundane and better done by computer.

Super Market Maker II

Salomon Smith Barney's new GATE system was developed to facilitate a large ramp-up in capacity at the big broker. The firm was already making markets in about 1,000 names when planning for GATE began last summer.

Because trading activity in the next 1,000 stocks is not as lively as the first, it was felt a computer could do most of the work of a human trader.

GATE is effectively an automated trading assistant. The trader does not have to continually monitor his positions and executions in 100 stocks. He sets up a few parameters and GATE notifies him when his positions exceed a pre-set level. He can tell GATE to maintain positions within +1000 shares and -1000 shares, for example. He can tell GATE to never let him go short.

In addition, GATE will go out into the market to buy or sell stock. It can react to news or information faster than a human trader.

Best Execution

Thanks to the SEC, new execution quality reporting rules are now in force in the listed market and will soon be coming to Nasdaq. Market makers are under more pressure than ever to get a grip on the nebulous concept of best execution.

royalblue says it's trying to help with new features in Fidessa that let firms create strategies to achieve best execution. Still in development, the technology permits a unified approach to best execution that takes into account all available execution options, the rules governing the handling of customer orders, a firm's positions and prevailing market conditions. royalblue executives say most systems on the market only allow for a piecemeal approach.

A strategy might be as follows: If the desk is profitably long in a stock, it could automatically give incoming orders one-cent price improvement. But if it then becomes short, Fidessa can survey the market for the best price. It could choose to let the order sit in the new Primex price improvement system for 30 seconds to await an execution. If an execution does not occur there, the order could be sent to an ECN or elsewhere. Or it could be reflected in a trader's quote. "You want to be able to change your best execution strategy on an intra-day basis," said royalblue's Joe Chafatinos.