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August 1, 2010

Tech Notes

Tech Notes

CBOE Unveils New Front End

By James Ramage

The Chicago Board Options Exchange has a new way for options traders to access the markets. This month, CBOE introduces its new front end, Pulse. The technology is the first product to emerge from Signal Trading Systems, a recent joint venture created through a partnership between CBOE and FlexTrade Systems.

According to CBOE, Pulse represents a significant improvement over the HyTS terminal that Belzberg Technologies designed for the exchange's customers in 2004. The International Securities Exchange, a CBOE competitor, is the only other options exchange with its own proprietary front end.

In addition to the seven other options exchanges, Pulse will eventually access CBOE's new C2 options exchange. It will also access the equities markets and the futures contracts on the CBOE Futures Exchange, said Ed Provost, executive vice president at CBOE.

"Initially we're not going to be plugged into futures exchanges other than CFE," he said. "But down the road, that's certainly a possibility."

Pulse lets traders sweep the top of the book across exchanges. It also gives users the most up-to-date functionality and applies the latest rule changes at the CBOE. By comparison, commercial front ends have a difficult time doing this, Provost said.

"Each of the options exchanges has fairly unique market models," he said. "And those models are characterized by many different order types, unique auctions that we run, crossing mechanisms and spread order entry capabilities."

Essex Radez Readies Order Book Service

By John D'Antona Jr.

Essex Radez, a Chicago-based broker-dealer and trading technology provider, is about to launch its consolidated order book service, Normalized Multicast Feed. It will publish data containing the top five prices and detailed quote volume data from BATS Exchange, Direct Edge ECN, Nasdaq TotalView, NYSE ArcaBook and NYSE OpenView.

John Muehlhausen, chief technology officer at Essex Radez, said his firm's feed uses between 100 and upward of 1,000 multicast group data feeds, as opposed to the exchanges' five to 20 multicast feeds.

"The firm's goal in creating the multicast feed service was to take high-end ticker plant features and make it available using a more scalable architecture, thus commoditizing it," Muehlhausen said. "We show the five best bids and offers that exist."

The data feeds could be linked to either a firm's smart order router or a trader's desktop order and execution management system, reducing overall latency.

The service, in beta testing at a few firms, will be fully available later this summer. Muehlhausen added the firm is working on a similar multicast feed service for the options markets, but didn't specify when it would be ready.

FlexTrade Jumps Cross-Currency

By James Ramage

FlexTrade Systems wants to help equities traders do pairs and risk-arbitrage trades in different currencies. The execution management system vendor introduced an algorithm, FlexSpread, that does both for buyside and sellside traders. The algo, which requires broker connectivity to the markets, comes with FlexTrade's FlexTrader EMS or as a stand-alone product.

Pairs and arb strategies profit from small pricing discrepancies, usually by buying one instrument and selling another highly correlated security. In this case, traders can execute a pairs trade in two securities denominated in different currencies. So a trader in Paris can, for example, trade a pound-sterling-denominated security like Barclays in the U.K. market against a euro-denominated security like BNP in the home market, while leaving any balance in euros, his reference currency.

FlexSpread also lets traders automatically hedge out their currency risk, said Max Palmer, director of algorithmic solutions at FlexTrade. That means, as in the case above, if a trader is balancing in euros, "every time he gets an execution on the London Stock Exchange, the algo can hedge out that pound sterling risk immediately in the amount of that fill," Palmer said.

FlexTrade plans to add other asset classes to its spread-algo strategy.