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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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November 1, 2004

Upstairs Traders Will Have Another Choice

By Peter Chapman

Archipelago Holdings is moving into trade advertisements.

The company that owns the Archipelago Exchange plans to butt heads with long-established players such as Thomson Financial and Reuters, providing an outlet for upstairs traders to advertise trades. The maverick trading house claims the data it collects and distributes will be more accurate than that of its competitors.

"Our role as an exchange is crucial here," says Jennifer Drake, an Archipelago managing director. "We have the regulatory reach that [our competitors] don't have. We want to leverage that role."

PCX, the entity that regulates trading on ArcaEx, will be responsible for ensuring the accuracy of the data, according to a recent filing with the Securities and Exchange Commission. The oversight is intended to ensure that traders don't overstate the size of their trades when reporting to Arca. Overstating is a common problem due to the present honor system' of manual entry, many traders complain.

Trade advertisements are reports of the share volume in recently completed trades sent by the sellside to the buyside. Brokers hope the buyside will respond with more business. Thomson's AutEx/BlockDATA is the largest trade advertisement service.

Arca will offer broker dealers two reporting methods. They can program their trading or order management systems to automatically report each trade. Or, they can continue to report manually, but will be audited by PCX at the end of the month.

Distribution will be via FIX messaging to multiple vendors' systems, rather than a single dedicated endpoint as is the current practice.