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Tuesday, May 13, 2025
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Raymond James Goes Electronic

By
Editorial Staff
-

Raymond James is building out an electronic equity trading business and is rolling out new algorithms so clients have another means to pay for research. The firm has also added new sales traders to its desk to further complement its electronic tools.

This is the second phase of its two-pronged approach to make the longtime high-touch shop a favored execution partner. The first phase was establishing a commission management business about a year ago. This follows the firm’s purchase of broker-dealer Morgan Keegan.

The addition of the electronic desk and white-labeling algos won’t affect Raymond James’ traditional high-touch trading focus, according to Dan McMahon, director of institutional equity trading at Raymond James. But it does provide the buyside with an alternate means of paying their research chits.

“We are, and will remain, a high-touch shop, but expanding into the electronic space is complementary, particularly in light of our growing commission management business,” McMahon said.

One desk head agreed, “Any real institutional brokerage needs to have an electronic offering, which is something the firm didn’t have.”

Raymond James completed a $1.2 billion merger with Morgan Keegan on April 2.

McMahon described the transition of Morgan Keegan traders into the Raymond James culture as “seamless.” He declined to say how many traders joined from the firm, citing compliance issues.

The build out of Raymond James’ New York-based electronic trading desk follows last year’s startup of the company’s commission management group, according to Doug Leo, the firm’s head of commission management and electronic trading in New York. The commission management business was the first step in offering a complete electronic trading platform.

Commission management services are good for the buyside – and the executing broker – as they allow a buysider to pay research bills to providers through a preferred executing broker, such as Raymond James. This leeway to pay its bills gives the buyside more flexibility managing its research relationships.

“Now that the commission management business is starting to grow, we can focus on the electronic desk,” Leo said. “Any statistic will tell you that 50 percent of all commissions are paid in the electronic space, so we had to have one.”

The firm will be “white-labeling” algos from multiple providers to offer to its clients. This would give clients a second way to pay for research away from executing high-touch trades. Raymond James will offer a full suite of single-stock algos, as well as pairs and program-trading algorithms.

He also told Traders Magazine that the firm plans to white-label and offer clients an order management system for those who do not have one. The firm is also looking into expanding its trading into non-U.S. equities and options.

On the desk, Raymond James has added five traders: Michael Young, Jeff Melvin, Kenneth Bollinger, Paul Cornette and Mark Koczan. Young, Melvin and Koczan join from Morgan Keegan.

The desk looks to leverage the firm’s research – which covers predominately the small- and mid-cap space.

“When clients seek liquidity in our names, they are confident we know where the bodies are buried, and can be trusted to make intelligent calls,” McMahon said.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Exec Opposes Sub-Penny Pricing

By
Editorial Staff
-

There’s nothing wrong with regulators experimenting with new pilot programs in order to improve the structure of the equity marketplace. But the one thing they should avoid at all costs is sub-penny pricing.

That’s according to Kevin Cronin, global head of equity trading for Invesco. He said sub-penny pricing would be an absolute disaster for the industry. If traders could jump in front of an institutional bid or offer for a tenth of a cent, institutions would never want to post bids or offers, he said.

He was sympathetic to the idea of a trade-at rule-which would require broker-dealers to give meaningful price improvement in order to internalize trades. But he said it would cause more harm than good if it included sub-penny pricing.

Stocks under a dollar already trade at sub-penny increments, and an argument could be made for sub-penny pricing for stocks under two or three dollars, but under no circumstances should that regime be applied across the board, Cronin said.

“The top 100 or 200 names trade well in a penny environment, but the vast majority of others don’t, so why in the world would we go to sub-pennies?” Cronin said. “That would be among the worst developments that could happen in the U.S. equity markets.”

Instead, he suggested a pilot program that would make tick sizes larger. Regulators could permit certain smaller stocks to trade at increments of more than a penny and see if that increases liquidity. Cronin said liquidity is currently a problem with a number of smaller stocks, and if larger tick sizes could increase liquidity in those names by drawing in more market makers, buyside firms like Invesco would definitely be more likely to hold them.

Cronin was supportive of the idea to impose fees on cancelled orders. Several exchanges have proposed such fees, but Cronin said those plans would likely penalize too few players to be effectual. He told Traders Magazine the bar could be gradually raised until it started having a positive impact on the market.

“It would be very dangerous for anybody to just pick a number and say that anything more than, for instance, 30-to-1, is a bad number for cancelations to trades,” Cronin said. “Who is to say that wouldn’t wipe out entirely a highly beneficial market-making strategy that actually did provide liquidity to the markets?”

Gradually increasing standards would be the safest approach to cancelation fees, he said, though there are other options. Thomas Joyce, chief executive officer of Knight Capital Group, has recommended minimum quote durations, which Cronin said could also work.

Another market-structure issue that troubles Cronin is the system of liquidity rebates that incentivizes brokers to make routing decisions based on rebates rather than on what is best for the client. While it’s difficult to tell how bad the problem is-or even if there is a problem at all-a pilot program could shed light on the effects such rebates really have.

Cronin suggests prohibiting rebates for a certain set of securities so regulators can study the trading data and determine if further rulemaking is warranted.

“See if that changes behavior,” he said. “We might have a hypothesis on what it would do, but let’s see. Let’s put the data together and see what the experience shows us.”

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Commissions Inch Higher

By
Editorial Staff
-

Options volume is headed down this year, but the institutional commission pool will be up slightly. That’s the prognosis from the Tabb Group in a report released recently. Tabb predicted that contract volume would decline by 10 percent this year, following nine straight years of gains. (Actual volume was down 6 percent at mid-year.) But the impact of the downdraft on institutional brokers will be minimal. Tabb expects volume to drop to 4.1 billion contracts this year, down from 4.5 billion in 2011. Still, institutional commissions will hit $2.2 billion, up slightly from $2.1 billion in each of the previous two years.

See Chart: Even Keel

Behind the uptick is an across-the-board increase in commission rates. (See table.) The average per-contract charge for high-touch trades in options costing more than $1, for example, will hit $2.56 this year, according to Tabb, up from $2.36 last year. Electronic trades will hit 78 cents per contract, up from 67 cents last year.

In general, rates are tiered, depending on customer volumes and the liquidity characteristics of the options, according to Tabb. Behind the increase in rates is the decrease in volume and the scarcity of broker capital. The buyside is paying more for each contract as it is sending brokers fewer orders. Among the buyside, it is the hedge funds that are carrying the load, increasing their commission spend by a whopping 23 percent this year. By contrast, traditional asset managers are spending less. Capital is scarcer due to ongoing de-risking by brokers, so firms in need must pay up. Most trades involve multiple legs.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Gaining Ground

By
Editorial Staff
-

The launch of the Nasdaq OMX BX options exchange, at the end of June, marked not only the debut of the industry’s 10th exchange, but an expansion of the use of taker-maker pricing.

In contrast to the conventional maker-taker pricing model whereby exchanges pay liquidity providers and charge liquidity takers, BX Options will pay liquidity takers and charge liquidity suppliers. While the scheme is relatively common in the cash equities business, its usage has been limited in options.

Nasdaq has said it expects BX Options to appeal to broker-dealers who are big takers of liquidity and may not be receiving payment for their order flow from intermediaries; or they may be unsure if they are being adequately compensated by their intermediaries. BX Options will not otherwise facilitate payment for order flow.

Professional traders who trade directly on the exchanges rather than go through an intermediary are expected to benefit. So too are some retail brokerages that deliver mostly market, or liquidity-taking, orders to intermediaries.

“Competitively speaking, this is a positive,” said Gary Sjostedt, director of order routing and sales at TD Ameritrade. “It keeps the exchanges on their toes price-wise.”

The BOX Options Exchange actually pioneered the taker-maker pricing strategy in the options market in 2009, but was the only exchange using it until this year. Then, in early June, the International Securities Exchange switched 25 options classes to taker-maker pricing.

BX Options instituted taker-maker pricing on July 2, becoming the third exchange to do so. There are differences among the three offerings. In contrast to the ISE, BX Options will offer taker-maker pricing in all options traded in penny increments. In contrast to BOX, Nasdaq will limit the rebate strategy to customers only.

For most of the BX names, Nasdaq will pay 32 cents per contract on customer orders that take liquidity. That compares with 22 cents for BOX’s “regular” market and 30 cents for trades in its auction. ISE also pays 32 cents per contract.

BOX chief executive Tony McCormick has dubbed the new Nasdaq exchange “NOX,” as he considers it a knock-off of BOX. BX Options has priced its take rebate 2 cents more than BOX’s auction rebate, and McCormick said he may have to react. “They priced it at 2 cents over our inducement fee, so we might bump them. Everybody plays that game,” he said. Roughly half of BOX’s volume is done in its price improvement auction.

BOX went taker-maker in 2009 to attract retail brokers or their intermediaries to send it flow. Previously, due to philosophical objections, the exchange did not offer a standard-issue payment-for-order-flow mechanism. That worked to its detriment as all the other exchanges did. Still, rather than institute a similar scheme whereby it administered market-maker payments to order-senders for their flow, it chose to pay for market orders directly.

Taker-maker pricing and payment-for-order-flow schemes are close cousins. The latter has historically greased the wheels of an options industry heavily reliant on retail market orders. Most retail brokers contract with intermediaries known as consolidators or smart routers. The retail firms deliver their orders to the consolidators and the consolidators deliver them to the exchanges.

The middlemen pay the retail brokers some amount every month based on the number of contracts and the quality of flow they collect. UBS, Citadel, Citi/ATD, Susquehanna, and Merrill Lynch are all big consolidators. They also all run large market making operations on the exchanges which they “preference” with the incoming flow.

BOX’s switch to taker-maker was not its salvation from a declining market share. Because it figured out a way to tie the pricing scheme to it price improvement auction, it gradually won over order senders. Consolidators with market-making units send flow to BOX’s auction so as to trade against the flow. Their customers get better prices than they otherwise would.

The downside of taker-maker is that the burden of keeping the lights on at the exchange is shifted to the market makers. Although the incoming flow may be desirable they would still prefer to get paid to supply liquidity. This is why taker-maker is largely a niche business. BOX’s market share has never risen above 5 percent.

Still, a market exists for the service. “By using different fee structures, you can segment the market to cater to a specific clientele,” says Boris Ilyevsky, an ISE managing director. To a large extent, ISE is targeting the disenfranchised. These are brokers who have never been paid for their flow “because the profile of the flow is not considered to be as valuable,” Ilyevsky explained. “We give these traders and their brokers an incentive to come to us directly.”

For the consolidators the story is different. On Jan. 3, the options world was turned on its head when the Chicago Board Options Exchange instituted its Volume Incentive Program, under which it doled out extra payments to high-volume traders. The move was aimed at the large consolidators and has proved beneficial to CBOE’s market share. By contrast, it has sent its competitors scrambling for a counter-offensive. None however have tried to match the CBOE’s largesse.

Ilyevsky says the ISE’s new pricing model should also appeal to consolidators. The program is competitive with other exchange offerings and even if it isn’t, “that doesn’t mean we don’t want to be the second destination,” he noted. “It might be a large order that has to sweep more than one market for size, or that first market may not be on the NBBO.”

Consolidators and their customers differ on the taker-maker programs. One exec with a consolidator, speaking of the Nasdaq program, noted that most customers of consolidators are already receiving generous monthly payments. They don’t care where their orders trade.

Another exec at a large consolidator found Nasdaq’s program lacking and said he would avoid it unless they added improvements such as an auction mechanism similar to BOX’s. Nasdaq, which plans to add functionality in the near future, would not comment for this article.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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On The Move

By
Editorial Staff
-

>>Philip Cushman returns to Cowen & Co. as head of equity sales, where he began his career in the 1990s. Cushman, a 20-year veteran, is responsible for growing Cowen’s sales of its equities products. He comes from Jefferies & Co., where he spent the last six years, most recently as head of global equity product management and a member of the firm’s equity operating committee. He reports to Tom O’Mara and Dan Charney, co-heads of equities.

If you’ve gotten a new job or promotion, let us know at onthemove@sourcemedia.com

>>Jennica Ross and Randy Scharringhausen join WallachBeth Capital. Ross, a nine-year pro, joins as a director and strategic relationship specialist. She was most recently a director for the strategic relations group at Guggenheim Funds Distributors, after a five-year stint as director of equity syndicates sales and marketing at UBS Financial Services.

Scharringhausen, a 17-year veteran, signed up as an institutional equity derivatives sales trader, focusing on options and merger arbitrage. He began his career as an options market maker at the American Stock Exchange and later became head of New York floor trading for Knight Capital Group. He joins WallachBeth from his own options brokerage and research firm, Capstone Global Markets.

>> Sales trader Kevin McCarthy and sales pro David Donovan join B. Riley & Co. at its newly opened Boston office. McCarthy, a 20-year veteran, comes from Detwiler & Fenton, where he was a managing director and sales trader. He has traded at Gleacher & Co., Pali Capital, Susquehanna Bank and Thomas Weisel. He reports to Knut Grevle, director of equity trading.

Donovan, a 15-year vet, comes from Detwiler & Fenton, where he was in institutional sales. He has done stints at Bank of America, Susquehanna Bank and Gleacher & Co. Jonathan Mordoh, a 26-year pro, joins B. Riley at its New York office and comes from Think Equity, where he worked in sales. He began his career at Salomon Brothers trading equity derivatives and later moved to institutional sales. He reports to Andy Moore, director of institutional equity sales.

>>Mark Koczan joins Raymond James as a senior vice president and sales trader in its equity sales trading group. Koczan, a 20-year veteran, spent the last five years at Morgan Keegan. He started his career on the floor of the New York Stock Exchange with DLJ as a floor trader. He has done trading and sale stints at NatWest Markets, Dresdner Kleinwort and Advest. He reports to Paul Powers.

>>Kent Christian, head of Wells Fargo Advisors’ financial services group, has been named president of the firm’s Financial Network, or FiNet, the broker-dealer affiliate through which it supports independent financial advisors. In his new role, he will report to Brand Meyer, president of Wells Fargo Advisors’ independent brokerage group. A 29-year industry veteran, Christian joined Wells Fargo in 2005. Before that, he was the national sales director for Raymond James Financial Services. Earlier in his career, he worked for PlanMember Financial and Bank of America.

>>Robert Manning joined Evercore Partners as a sales trader handling real estate investment trusts. Manning was previously a sales trader with Keefe, Bruyette & Woods. He joined Evercore with two other REIT specialists from Keefe Bruyette.

>>Elizabeth Tolomeo joined Academy Securities as managing director for Chicago sales and trading, establishing and managing the firm’s Midwest branch. The 20-year veteran of the industry previously spent more than three years at Melvin Securities. She will report to Michael Naidrich, head of East Coast trading.

Daniel Lennon also joins Academy Securities as a director and partner. A one-year newbie, Lennon, will work with the firm’s sales traders to build out trading relationships and bring in new business. Prior to Academy, he worked at AEW Capital Management Partners Fund. He reports to chief executive Chance Mims.

>>Brian Nigito joined proprietary trading firm Jane Street Capital. Nigito was previously with Getco, responsible for its options market-making platform. Nigito was an early employee at the Island ECN and later in charge of high-frequency trading at Citadel Investment Group.

>>Francis Corcoran became president and chief administrative officer of the National Stock Exchange. Corcoran was previously an executive vice president at Perimeter Capital. Before that he was a senior vice president at the American Stock Exchange. At NSX, he reports to chairman and chief executive officer David Harris.

>> Deutsche Bank has brought on three trading pros. Jeff Christian joins the bank in equity derivatives sales and will be based in San Francisco. He will oversee West Coast coverage and report to Greg Kuppenheimer. Christian joins from Credit Suisse, where he managed West Coast equity derivative sales.

Jonathan Simon also joins as a managing director in equity derivatives sales. In his New York-based role, he will manage relationships with hedge funds and asset managers. Simon has more than 20 years of experience and spent the last eight years as a managing director in equity derivative sales at Citigroup. Simon will also report to Kuppenheimer.

Brad Kurtzman comes on board as a managing director and head of quantitative trading. He will be based in New York. Kurtzman has more than 12 years of trading experience, most recently as head of U.S. equity derivatives trading at Citibank. He will report to Tom Patrick.

>> Union Gaming Advisors hired two sales traders, Matthew Brown and Kevin Debbs, for its Las Vegas headquarters. The hires are part of a build-out of the firm’s equity trading platform. Brown most recently covered institutional clients at Susquehanna Financial Group. Prior to Susquehanna, he spent eight years at Kellogg Partners. Debbs joins from Deutsche Bank Securities, where he was head of domestic sales trading in North America and responsible for a team of 18 traders.

>> Michael Riffice joins BGC Partners as a managing director and head of futures and options for the Americas. Riffice, a veteran of more than 18 years, will look to grow the firm’s derivatives business. Riffice has held senior roles at Barclays Capital and SBC/UBS. He reports to J.P. Aubin, executive managing director and global head of listed and structured products.

>> Jon Ross was named Getco’s new chief technology officer. Ross will oversee the firm’s strategic technology platform and the development of its suite of trading technology and execution services products. An eight-year industry veteran, Ross has been with the market maker for the past four. Prior to his appointment as CTO, Ross was head of Getco Execution Services in Europe and oversaw order management, execution and technology solutions for the company’s European clients. Also, he served as CTO of the Nasdaq stock market and of the alternative trading system Inet. Ross will be based out of Getco’s Chicago headquarters and will report to chief executive Dan Coleman.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Debate On ‘Playing Field’ Heats Up

By
Editorial Staff
-

Be careful what you wish for. Duncan Niederauer, chief executive of NYSE Euronext, one of the largest operators of stock exchanges, called on Congress in June to “level the playing field” between exchanges and brokers’ alternative trading systems. According to Niederauer, exchanges such as those operated by NYSE Euronext are at a disadvantage to ATSs-with which they compete-because ATSs are more lightly regulated than exchanges. Niederauer was testifying at a hearing of the House Committee on Financial Services. He argued ATSs were similar to exchanges and therefore needed to be regulated like exchanges. That would eliminate any legal advantage they held.

Dan Mathisson, head of U.S. equity trading at Credit Suisse, operator of the industry’s largest ATS, was also testifying at the hearing. Surprisingly, Mathisson agreed with Niederauer: ATSs are no different than exchanges and the playing field is not level. Mathisson, however, argued that the advantage is not with the ATSs, but with the exchanges. He told Congress the best way to level the playing field is to eliminate the restriction that limits broker-dealer ownership in an exchange to no more than 20 percent. If that is done then most of the ATSs would become exchanges and the playing field would be level, Mathisson said.

Niederauer offered three reasons why ATSs have an advantage over exchanges. Mathisson offered four reasons why exchanges have an advantage over ATSs. The excerpts below are from their written statements as well as their oral testimony.

Mr. Niederauer

ON THE LENGTHY SECURITIES AND EXCHANGE COMMISSION APPROVAL PROCESS

Regulatory inequality allows ATSs to innovate quickly without SEC approval, while exchanges must undergo a rigorous and lengthy regulatory review process to initiate change. They should make our rule proposals effective on filing or subject our competitors to our elongated approval processes.

ON FAIR ACCESS

Registered exchanges are required to have membership rules and procedures specifically designed to ensure access to exchange facilities is granted in a fair and impartial manner. The fair access requirements applicable to ATSs are far narrower. ATSs must comply with general fair access requirements only if a five percent trading volume threshold in an individual security is exceeded, and certain exceptions apply. NYX believes comparable fair access requirements should be applicable to all venues.

ON THE BURDEN OF MARKET SURVEILLANCE

Registered exchanges have self-regulatory responsibilities and must either maintain an extensive regulatory organization to conduct market surveillance or enter into a regulatory services agreement with another self-regulatory organization, either of which involve significant time and resources. Non-exchange trading venues are not subject to the same rules and are free from any self-regulatory requirements. We believe all market centers should share the same responsibilities and contribute to the cost of market surveillance based on their respective market shares.

Mr. Mathisson

ON EXCHANGE IMMUNITY

Exchanges have absolute immunity on errors, having historically been considered quasi-governmental entities. Courts have typically ruled that exchange immunity holds even in cases of gross negligence or willful misconduct. ATSs are regular businesses that have liability for their actions. We believe that considering exchanges to be quasi-governmental entities no longer makes sense. Exchanges should not have been allowed to convert to for-profit entities six years ago while still retaining their SRO status. It is time for policy makers to correct this mistake by removing the exchanges’ status as self-regulatory organizations.

ON THE TAPE REVENUE MONOPOLY

The Consolidated Tape Association has a legal monopoly on providing a consolidated stream of real-time data from our nation’s stock markets. The CTA makes a profit of approximately $400 million per year, which is then rebated to its participant exchanges based on a complex formula. The revenue that exchanges receive from these rebates is significant. For example, Nasdaq reported receiving $116 million in rebates in 2011 from the CTA. ATSs do not receive tape revenue. These plans were set up in November 1972. After 40 years, we believe the current tape revenue model is obsolete and rife with problems and we recommend a full review of the tape revenue system.

ON THE LACK OF CLEARING FEES

Exchanges pay no clearing fees. An ATS is a party to both sides of each transaction that passes through it, while an exchange merely facilitates the transaction. Therefore ATSs pay tens of millions of dollars in clearing fees annually, whereas exchanges pay no clearing fees.

ON THE LACK OF CAPITAL REQUIREMENTS

Exchanges have no net capital requirements. Because they are not a party to the transactions that occur on their systems, exchanges do not need to hold capital to stand behind their trades.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Bill Proposed to Support Small Caps

By
Editorial Staff
-

A Republican congressman plans to introduce a bill that would encourage stock exchanges to develop programs that permit their listed companies to pay market makers to support their stocks. The bill would also void rules of the Financial Industry Regulatory Authority that bar the payments.

The goal of the bill, sponsored by Rep. Patrick McHenry, R-N.C., and titled “Liquidity Enhancement for Small Public Companies Act,” is to improve liquidity in small-cap stocks. It mirrors recent proposals by exchanges operated by Nasdaq OMX Group and NYSE Euronext.

“My thought process here is to incent small companies to seek our exchanges, to seek the public markets,” McHenry said during a House Financial Services Committee hearing recently. “So the idea is that you have some liquidity support.” 

Specifically, the congressman’s bill would “promote the development of market quality incentive programs on registered national securities exchanges in the United States and would prevent a national securities association registered under Section 15A from barring a market maker’s participation in such a program,” according to a summary of the bill. FINRA is a “national securities association.”

McHenry has written his bill in draft form and is expected to formally propose it in the “near future,” according to a spokesperson.

The congressman is best known on Wall Street as the architect of the “crowdfunding” section of the recently enacted “Jumpstart Our Business Startups,” or JOBS, Act. Crowdfunding will let small businesses raise capital outside the securities industry by aggregating small investments from multiple investors.

McHenry distributed details of his ‘liquidity enhancement’ bill last week to members of the Financial Services Committee, as well as industry executives. The reception from exchanges and market makers was positive.

“In Europe, this is the rule, not the exception,” NYSE Euronext chief executive officer Duncan Niederauer, told McHenry during the congressional hearing last week. “We hope your legislation will allow us to revisit old rules that don’t allow companies to pay for market making.”

McHenry’s bill could put pressure on the Securities and Exchange Commission to approve the proposals by Nasdaq and NYSE Arca, which look to permit issuers of smaller, less liquid exchange traded products to pay market makers to support their securities.

The practice is currently illegal and the two proposals are getting some pushback from industry players and the American public. FINRA banned payments by issuers to market makers in 1997, because of concerns of manipulation.

The current Nasdaq and NYSE Arca proposals attempt to avoid those concerns by focusing on ETPs, which are generally index-based products. Because they represent multiple securities, their prices would be harder to manipulate, the exchanges contend.

Response to the exchange proposals has been mixed. Knight Capital Group supports the Nasdaq proposal as do a few academics. The Investment Company Institute, which represents ETP issuers, likes the idea, but wants it to be tested in a pilot program.

Other commenters told the SEC it was a bad idea. Even one of the ETP issuers has its doubts. Despite disclosures Nasdaq intends to make regarding the identities of the market makers and the payments they receive, Gus Sauter, Vanguard’s chief investment officer told the SEC:

“It is not clear whether these safeguards will be sufficient to overcome the presumption…that issuer payments to market makers have the potential to distort the market and create conflicts of interests that corrupt the ‘integrity of the marketplace.'”

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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NYSE Claims Win On Retail Program

By
Editorial Staff
-

NYSE Euronext won a major victory last month when the Securities and Exchange Commission approved the exchange operator’s controversial proposal to compete for retail orders using hidden sub-penny quotes.

The so-called “Retail Liquidity Programs” is slated to launch at both the New York Stock Exchange and NYSE MKT on Aug. 1. The programs aim to confer better pricing on retail orders than is available at the national best bid or offer. “Providing price improvement for retail orders within an exchange environment affords individual investors new economic incentives and ensures greater transparency, liquidity and competition throughout the U.S. cash equities marketplace,” Joe Mecane, an NYSE Euronext executive vice president, said in a statement.

In granting its approval, the SEC exempted the exchanges from Regulation NMS’ sub-penny rule and agreed not to pursue the exchanges for violations of its bedrock Quote Rule. The regulator defended its decision by noting that the programs operate no differently than programs run by the major wholesalers.

In recent years, the SEC has expressed concern that too much retail flow was not reaching the public markets; rather it was being intercepted by wholesalers. The SEC noted the programs would be run as one-year pilots.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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Risk Checking in Under 500 Nanoseconds

By
Editorial Staff
-

With the Securities and Exchange Commission’s new rule banning naked access in place, an arms race has developed among trading systems vendors.

Each claims their platform is the fastest when it comes to risk-checking orders. Now New York-based Matrix Trading Technologies is claiming it can run an order through 41 risk checks in less than 500 nanoseconds. The trick, according to Matrix founder and chief executive Louis Liu, is his system’s usage of field programmable gate array technology.

While most vendors use software to conduct the risk-checking process, Liu contends FPGA hardware is faster.

“It took awhile to make this available,” Liu said, “but it is incomparable as far as speed.”

The SEC’s Rule 15c3-5 forces brokers to run their customers’ orders through a slew of risk checks before sending them to the market. That is supposed to minimize the chances a rogue order will disrupt trading. The result is a scramble by brokers looking for technology that will check risks but not slow down their latency-sensitive customers.

Liu is an industry veteran who built one of the original direct-market-access platforms, Sonic Trading. The system was bought by the Bank of New York’s institutional brokerage arm (now ConvergEx) in 2004.

Liu and Sonic co-founder Joe Cammarata spent about four years at ConvergEx before leaving to start Matrix in 2007.

(c) 2012 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
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BlackRock Launches Five ETFs in Canada

By
Editorial Staff
-

BlackRock’s Canadian subsidiary has launched five new exchanged-traded funds designed to offer Great North investors exposure to domestic, international, developed and emerging markets while minimizing volatility.

Canadian investors requested the iShares ETFs, according to Mary Anne Wiley, managing director and head of iShares for BlackRock Canada. These funds are the first ones targeted to Canadian investors that combine minimum volatility and global market exposure. The ETFs can help provide a portfolio with downside protection while seeking to maintain some exposure to upside price movement, she said.

All five of the iShares ETFs began trading on the Toronto Stock Exchange on Monday.

"With the uncertainty in today’s markets, investors want to capture potential market upside but still protect their assets," Wiley said. "It’s a compelling option for investors looking for a contrast or complement to other portfolio management strategies and will also optimize risk-adjusted returns over the long term."

The new ETFs are:
iShares MSCI Canada Minimum Volatility Index Fund
iShares MSCI USA Minimum Volatility Index Fund
iShares MSCI EAFE Minimum Volatility Index Fund
iShares MSCI Emerging Markets Minimum Volatility Index Fund
iShares MSCI All Country World Minimum Volatility Index Fund

Minimum volatility ETFs seek to track steady performance that helps insulate against spikes in returns, Wiley added.

The ETFs track minimum volatility indexes created by MSCI.

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