Ballista, an institutional liquidity pool for block and delta-neutral volatility trades in options, is getting ready for an early August launch. It aims to find matches for single and multi-leg options trades on its platform and bring those crosses to options exchanges for execution.
Robert Newhouse, CEO of Ballista, said the platform is ready for business. In recent weeks, the 20-person firm has integrated into its platform several last-minute requests for changes to the system’s interface and negotiation tactics, based on feedback from prospective users.
“The reception has been stellar,” said Newhouse, who founded the firm in June of last year when he saw options exchanges making changes to facilitate electronic crosses. “There’s strong interest from the buyside and from sellside liquidity providers at various banks.” Newhouse is a former executive who worked in technology at Island ECN from 1997 until 2000. As a tribute to those days, he had Island’s “I” logo tattooed on his arm.
Ballista joins institutional broker 3D Markets in providing investors with an electronic platform to arrange block trades that are then brought to exchanges for execution. Unlike in equities, there are no trade reporting facilities in options, and therefore no ability for firms to internalize listed trades. Crosses are subject to the exchanges’ rules, which expose them to the crowd for price improvement. Crosses therefore aren’t guaranteed to execute as submitted.
Ballista’s minimum order size for complex and volatility trades is 500 contracts, while 3D’s is 5,000 contracts for transactions it pairs up. Both platforms hope to draw volume their way from the vast over-the-counter market.
3D and Ballista are “basically liquidity-seeking mechanisms,” noted Ed Provost, executive vice president for business development at the CBOE. “They serve the marketplace by helping facilitate institutional-size orders, which can be price-improved by exchanges. Displayed liquidity has been wanting in our business since pennies.”
According to Newhouse, liquidity seekers who come to Ballista to do complex trades are likely to be the proprietary trading desks and facilitation desks at banks, as well as long/short and other hedge funds. Liquidity providers are likely to be banks, broker-dealers, market-making firms as well as hedge funds that trade volatility. He declined to say how many users are already hooked up to the platform.
Ballista, which expects to receive its broker-dealer license immanently, will submit the options legs of paired trades to the International Securities Exchange or the CBOE for execution. The equity portion of trades will be printed to the FINRA/Nasdaq TRF. Ballista plans to use an all-or-none order type for crosses. Exchange market makers who want to offer price improvement must improve the trade price by a tick for the full order size.