Commentary

Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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March 18, 2010

Best-Ex Data for Complex Options Trades Coming

By Peter Chapman

CLARIFICATION: This story, appearing in the March issue, stated there was little measurement of the quality of complex options trades. TAG, a supplier of trade quality statistics, reports it has been measuring the quality of complex options trades using multiple benchmarks for many years.

 

S3 Matching Technologies, a Texas-based vendor that supplies brokerages with execution quality data, is rolling out a service that weighs the quality of complex options trades. E*Trade, the large retail brokerage, is an early adopter.

Industry vendors such as S3 and TAG already supply brokerages with data covering trades of individual calls and puts. But other than TAG, there is little measurement of so-called complex trades. These include spreads or straddles which involve two or more contracts. Brokerages "just take their word that the execution is a good one," John Standerfer, an S3 executive, said of the exchanges and market makers who handle the trades. "They don't really know what the price improvement is, because they don't have a good way to view it." Standerfer was speaking at a recent industry conference.

S3's new service will target two-legged trades initially and create a composite NBBO based on both legs. That way firms will be able to measure the level of price improvement they are receiving, Standerfer said. Chris Larkin, an E*trade executive, explained that the service will prove useful as it will provide certain measurements the company now lacks. The information will be helpful when E*Trade's customers complain about their fills of complex orders, Larkin noted.

 

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