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John Turney
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Foreign Exchange Infrastructure: Yesterday, Today and Tomorrow

In this exclusive to Traders Magazine, John Turney, Global Head of Outsourced FX at Northern Trust, discusses the evolution of the fx infrastructure and what is to come.

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September 22, 2005

Chatting with Tony Saliba: Exchanges, Internalization & Payment for Order Flow Discussed

By Mark Longo

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  • Chatting with Tony Saliba: Exchanges, Internalization & Payment for Order Flow Discussed

Tony Saliba, the founder of many trading enterprises, is an options business legend. He began as a one-lot trader at the CBOE in 1978. Today Saliba heads two firms that offer execution and analytical software services, First Traders Analytical Solutions and LiquidPoint. The latter is a brokerage firm with access to all exchanges and a presence on the floor of both the CBOE

and the AMEX. Saliba made his mark negotiating volatile markets until 1991. He tried software development in the area of training traders about options. Saliba then went into software development at the point of execution. That led him to consult on the launch of electronic trading at seven options exchanges. They include exchanges in Frankfurt (DTB, now Eurex), Austria (OTOB) and Milan (IDEM). Traders Magazine columnist Mark Longo asked Saliba about the options industry.

Where is the industry going?

In this industry, there has been consolidation in a number of areas. We've seen exchange consolidation, liquidity provider consolidation, order flow provider consolidation, etc. My partner and I call it the power of the microchip, because that's really what drives a lot of this consolidation. It's easiest to see in the roles that you and I used to have as market makers. The big firms can now use technology to stream quotes into the markets, where as in the past, they had to put a person in every pit. The same holds true for the exchanges. The Arca/NYSE deal is a great deal for the NYSE because, in my opinion, they are able to gobble up their main competition without giving up too much in the process. If Arca/NYSE play their cards right with the PCX, they can easily become the big dog in the options business.

What do you mean by "playing their cards right?"

The options business is perfectly dependent on the underlying market. Bringing aspects thatare innate to the trading of these two, such as packaged orders of stock and option combinations, in a streamlined, low-costdelivery, will win market share.The relationships are there: Arca's innovation, the Big Board's power and thePCX's instincts to survive could be a powerful combination. But you know what they say about the best laid plans....'

As the investing population grows and becomes more educated, options are a natural choice. There is much more flexibility of strategy with options. But the options market does not exist without the stock market. So it is there to seize for the NYSE/Arca/PCX combo. It was always a fear of ours on the floor that the NYSE specialists would figure out options and take the business away from Chicago. But it did not happen. The NYSE Options closed down and sold its operations to the CBOE. It's not certain that that they'll figure it out this time, either. They still have to play it right.

There's also the added incentive of having the "one stop shop," where people can go to execute all of their option and equity orders.