With increased trading volumes there have been more new entrants coming in the options market making wholesaler space, according to Erik Swanson, Simplex Trading CEO.
“We’ve definitely seen a big bump in new entrants,” he told Traders Magazine.
“There’s just been so much growth with all these new retail traders coming in. So volumes have been so high compared to history, it’s really been remarkable how much we ramped up,” he said.
“On the wholesale consolidator space, I think that it ties in really well with what’s going on with retail. It’s creating a lot of excitement amongst trading firms to see all this retail coming in and I think that it presents a better opportunity than in previous years when things weren’t quite as busy,” he said.
Swanson said that Virtu Financial mentioned on a recent earnings call that they are planning to expand into that next year.
In addition, both Hudson River Trading and Jump Trading Group have recently announced plans to enter the business of conducting equity trading for retail investors.
“I think we’re going to end up having more participants in both equity and option wholesaling going forward,” Swanson said.
Simplex is a technology-focused proprietary market making firm.
Since its founding in 2004, Simplex has focused on building proprietary software to create and capitalize on financial opportunities.
The company currently provides liquidity in thousands of options products across the equity, index and futures options spaces.
According to Swanson, Simplex did a partnership with an institutional routing broker called Matrix Executions to help facilitate its move into the wholesale space.
“Right now we’re really focusing on building out this wholesale consolidator business, providing price improvement to retail brokers and just continuing to improve our based market making operations,” he said.
When asked about consolidation, Swanson said: “Things are good for everyone right now.”
“I think it’s more likely that we see firms focusing on organic growth right now. I mean, it’s possible that you end up seeing consolidation in terms of acquisitions, but I don’t really see a lot of doubt in the short-term horizon,” he added.
Swanson said that with all of these new participants coming into the space, it’s going to create a situation where innovative products need to be produced by all the participants to meet their needs.
“The kinds of traders who are coming in today are different people than have been traders in the market historically, and they want different things,” he said.
“I think Robinhood Markets has been enormously innovative and coming up with a new way to get firm, or to get individuals to engage with trading,” he said.
He thinks there will be a lot more innovation, both on product and on presentation going forward to try to engage individuals and teach them about how to trade effectively.
“On the market making and professional side, we’re going to have to keep innovating to be able to provide price improvements and quality execution to those customers. And to be able to handle this, the resulting amount of market data and the new throughput that we have to be able to deal with. I think it’s going to keep pushing us to adapt and service the kinds of products that these new participants want,” he said.