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October 3, 2011

Ex-Ballista Chief Moves On

By Peter Chapman

Rob Newhouse has a new gig. The co-founder and onetime chief executive officer of the now defunct Ballista Securities recently became president of Victor Technologies, a vendor of risk management software for options traders.

Robert Newhouse

The move marks a return to the executive suite for Newhouse after stepping down from Ballista in December 2009. That's when the brokerage, which had tried to use technology to change the way large options trades were put together, changed course and brought in a new chief executive.

Ballista's original mission was to operate an electronic auction marketplace for the trading of blocks of listed options. The broker's goal was to displace the traditional interdealer broker by automating its services. That effort fizzled and the company became more of a traditional interdealer broker itself.

Ballista ran into financial difficulties last year and stopped operating. In February, Ballista sold itself to the Intercontinental Exchange. The futures exchange operator intends to use Ballista's technology to trade over-the-counter options.

Newhouse attributes Ballista's undoing to two factors. First, the firm "lacked focus" when it came to the broker's constituency. In other words, it had difficulty deciding whether its customer was the buyside or the sellside. Second, the firm found it difficult to convince the buyside trader to put his orders in Ballista's system instead of calling his traditional broker.

Contrary to popular belief, the delay endured by the International Securities Exchange in winning approval from the Securities and Exchange Commission for its Qualified Contingent Cross order type was not a major contributor to Ballista's problems, Newhouse said.

"QCC would'v made it less expensive to run my business," Newhouse told Traders Magazine, "but [its delay] was never a roadblock."

The ISE" QCC order type allows traders to automate their tied-to-stock trades. Newhouse explained that, in lieu of QCC, Ballista simply paid a stock wholesaler to fill any large stock blocks that it couldn't put up on the tape.

""Many people thought that when QCC came out, Ballista's business would explode," Newhouse noted. "I think we would've seen a little bit of a bump in volume--maybe 5 percent to 10 percent more--but nothing huge."

Newhouse's current endeavor takes him into a more established business--providing options firms with trading, analytics and risk management software. Prospects are market makers, proprietary traders and the buyside.

Victor was formed when the Gargoyle Group, an options market making firm, spun off its technology arm last year. Newhouse became Victor's first CEO in February. The firm became operational in April and now has about 15 employees.

The suburban New York-based vendor has three product lines: (a) an options pricing package that competes with similar tools from Derivix or Microhedge; (b) an auto-quoting engine that competes with products from Imagine or Nirvana; and (c) a risk management package.

"The risk management solution is the least commoditized," Newhouse explained. The software aggregates all of a firm's positions into a single view and permits a trader "to understand every single execution and position he has," Newhouse said.

Most importantly, the exec added, the software allows the trader to "stress test" his portfolio based on different scenarios for pricing, volatility and other market movements. Victor has two clients, including Gargoyle.

 

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