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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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September 1, 2011

In the Footsteps

Vendor Follows Ballista into Auctions

By Peter Chapman

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Ballista didn't make it. Will Emergent have better luck? Emergent Trading Solutions, a start-up vendor of execution management technology, is trying to drum up interest in an electronic auction mechanism for the trading of large options orders. The firm is positioning the platform as an alternative to capital commitment by large institutional brokers.

Steve Lynner, Emergent

"There's no price competition for orders effected between a broker-dealer and a buyside," noted Emergent president Steve Lynner. "In some instances, that's a good thing. But for other orders, the buyside may want to have price competition. Also, there's a whole strata of institutions that can't get access to capital."

Lynner was president of Thomson Financial's AutEx division from 1998 to 2003, when the organization introduced TradeRoute, an order-routing system for the equities business. After that he was hired to turn around a floundering Davidge Data Systems, where he built an options order management system. The technology was used by market makers Citadel Securities and Knight Capital Group, now part of Citigroup.

Lynner has headed Emergent for the past three years, and in March released an execution management system called ModelRoute. He has found no takers as yet for the product and is hoping the addition of an auction platform will make it more attractive.

Slotting an auction marketplace into the existing structure of institutional options trading may not be easy. Ballista Securities, now owned by a futures trading outfit, was built around an auction mechanism. Intended as an alternative to the traditional interdealer broker, the platform never gained traction with the buyside and eventually withered on the vine.

Lynner is undaunted. He argues that his platform offers more transparency than Ballista's, making it akin to a public bulletin board. This should guarantee a wider audience, he contends. The exec also maintains that his business model is more broker-friendly.

Still, options industry executives say the start-up faces big challenges. Because the buyside is comfortable with the status quo, changing its behavior won't be easy.

"You need both the buyside and the sellside to embrace this in order for it to work," said John Duffel, Instinet's chief strategy officer, and founder and head of Torc Financial, the options brokerage Instinet bought in 2009. "If they are not ready for that, then I don't see this as being any more successful than Ballista."

Indeed, even the former head of Ballista expects Emergent to find the going tough. Rob Newhouse, now chief executive of Victortek Technologies, a vendor of risk management and analytic software to options traders, says the hurdle is getting the software on the buyside's desktop.

"You need to have people who are dedicated to providing orders into the system," Newhouse said. "It's easy to find liquidity providers because options order flow is very profitable to trade against."