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December 2, 2013

A New Algo Option

With Autobahn Options, Deutsche Bank hopes to address the needs of options traders who are looking for new trading formulas.

By By Phil Albinus

Last month, Deutsche Bank un- veiled anew suite of algorithms aimed at buyside options traders. As part of the bank's Autobahn electronic trading business, Autobahn Options offers U.S. equity options trading capabilities including access to the Chicago Board of Options Exchange, International Securities Exchange, NYSE Arca, Boston Options Exchange, BATS Options and NYSE Amex. Autobahn Options also includes a suite of algorithms designed solely for options traders and their strategies. Traders Magazine spoke with Jose Marques, global head of electronic equity trading, and Jay Fraser, head of equities in the Americas, to find out how the options trader differs from the equity trader, what need there is for new algos in this asset class and whether they missed the boat when equities lost steam after the global financial crisis of 2008.

 

Is Autobahn Options an update or a new trading platform?

Jose Marques: It's brand new. We've had some offerings in this space, but this is a holistically new offering. It's new front to back, with market-leading functionality, and we hope our clients will think so as well.

 

Why introduce algorithms for trading options?

Marques: It's a natural extension of what we've been doing around equities. Deutsche Bank rebuilt its electronic franchise starting around four years ago. It was nice timing overall because it was after the seminal 2007 shift to electronic-based liquidity provision in the marketplace. So it gave us an opportunity to build for the going-forward market structure rather than the looking-back market structure. We have been extending those products, and equity options was basically the next thing in line.

 

Is Deutsche Bank late to the options algo market?

Marques: No, there are several very good products out there, and then there are trivial products in the sense that they'll route an order by a call to a DMA venue or use some very simplistic smart order routing. This solution has sophistication built in within the options executions space that has not really been addressed.

 

In your experience, how do options traders differ from equity traders in what they want from algos?

Marques: On one level, they have some of the same requirements, which are driven by market structure. The options world, like the equity world, is highly automated and highly electronified-and it's highly fragmented. Therefore, having a set of tools that lets you deal with that fragmentation is very important.

The other point is, when you look at who provides liquidity into the options world, it may not be the same exact players, but it may be the same types of players as in the equity world. These are highly automated, electronically driven liquidity providers. There is very little difference in what they are doing.

Where they differ is the complexity of the trades. The complexity for some participants, not all, does vary. A lot of the types of orders in the options world are effectively pairs of trades, such as multi-leg options trades, that might include a hedging component where you want to execute stock alongside your options. So some of the actual strategies are a bit more complicated, but a lot of the underlying needs are the same.