Commentary

Ivy Schmerken
Traders Magazine Online News

MiFID II Transparency Puts Stress on Data Architecture

Buy-side firms are facing huge changes in disclosure and transparency requirements, which could upend their data management architectures, according to this guest commentary from FlexTrade.

Traders Poll

Are you concerned about foreign ownership of a U.S. stock exchange?



Free Site Registration

February 24, 2006

At Deadline

By Editorial Staff

SEC Targets Payment

*The Securities and Exchange Commission has started an investigation into the payment for order flow practices of the options industry. That's according to Rick Guerin, Morgan Stanley's executive director of options and futures. "They want to send six attorneys to visit us," Guerin said at the Security Traders Association of Chicago's annual conference. "They are working on it. They are concerned." Guerin notes Morgan Stanley does not accept payment for the orders it routes to the industry's exchanges. "I feel very comfortable accepting [the SEC's] calls," the exec added, "because I don't accept payments." Guerin is opposed to payment for order flow and believes the regulators will eliminate the practice. The SEC last investigated the practice of options exchanges paying brokers for their orders in 2000 when it published a report. More recently, the regulator's ongoing concerns were made clear at the options' industry's annual conference last year. Then, the SEC's associate director of market regulation, Elizabeth King, said the practice involved conflicts of interest. She indicated though the time was not right to ban the practice. Still, many in the options industry believe the SEC wants to eliminate payment for order flow indirectly by introducing penny quoting.

No Pennies Soon

*The options industry will not be quoting contracts in pennies anytime soon despite pressure to do so. That's the conclusion of a group of top options executives speaking at a recent industry event. "I don't think we'll get pennies this year," said Tony McCormick, a Charles Schwab & Co. executive. "I think there will be a progression though-a tightening of the market." Options contracts are quoted in nickels and dimes. Some industry experts predict contracts trading with 10-cent ticks will go to nickels. Others envision the more active contacts trading in pennies. "A move to pennies should probably occur with a smaller segment," said Ameritrade's head of order routing, Chris Nagy. "Start with the QQQQs or the Spiders or the Diamonds." The Securities and Exchange Commission is said to favor penny ticks, but has not acted. The Pacific Exchange said last year it would move to pennies, but has taken no action since its acquisition by Archipelago. The options industry managed to ward off the government-mandated decimalization that hit the equities industry in 2001. It claims its message processing capacity is insufficient to handle the surge in quotes that would accompany penny ticks. "Quotes are running at 88 percent of capacity now," Nagy warned.

Courting the Buyside

*royalblue, a vendor of sellside order management and execution systems, is targeting the buyside. The British software company is marketing a new "multi-broker" front-end trading system that gives buyside traders three order handling choices. They can route orders to their brokers. They can access brokers' algorithms. Or they can trade direct market access under the names of various brokers. This last multi-broker feature, according to royalblue, means the buyside trader only has to install one front-end on his desktop. He does not need to use a separate system from each of his major brokers in order to pay them. royalblue is marketing directly to the buyside and through sponsoring brokers. The vendor says it has installed its system on 2,000 desktops in Europe. In the U.S., vendors such as Lava Trading also offer multi-broker functionality to the buyside.