By Hal Weitzman
Independent futures traders at one of the CME Group's most high-profile
trading pits have walked off the job in a highly unusual protest
against"block trades", large, privately negotiated...
Join the CME Co-Location Services Team for an afternoon of technology
discussions, hardware demos and interactive games from Microsoft, all while
overlooking Chicago from the 99th Floor Skydeck of the...
By Howard Packowitz
CHICAGO -(Dow Jones)- Independent traders staged a walkout Friday of CME
Group Inc. (CME) options on Eurodollar futures, protesting a large,
privately negotiated trade a day earlier.
By Katherine Heires
The cheetahs, as Bart Chilton, a commissioner with the Commodities Futures
Trading Commission, calls high frequency traders, have come under
ever-greater scrutiny from the CFTC and Securities Exchange...
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IntercontinentalExchange Inc. (ICE) (ICE) plans to offer futures and
options in U.S. grains and oilseeds, expanding competition with CME Group
(CME) (CME) Inc., the leader in agriculture...
By -Electronic futures planned in corn, beans, wheat
Electronic futures planned in corn, beans, wheat
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By Peter Chapman
Plans by two of the major exchange operators to reduce the amount of
messages that pass through their systems have received mixed reviews.
Last month, both Direct Edge and...
CHICAGO BOARD OPTIONS EXCHANGE PLOTS MOVE TO SECAUCUS
By Ed Beeson
SECAUCUS — Could it become the New Jersey Board Options Exchange?
The largest and oldest venue for trading financial instruments known as options is moving the heart and soul of its operations to the Garden State later this year. The computer platforms that power the Chicago Board Options Exchange's electronic trading operations are being relocated from the Windy City to a massive warehouse in Secaucus.
The move won't bring new jobs to New Jersey and CBOE, as it's commonly known, isn't changing its name. But the cross-country move is key to keeping the exchange competitive in the rapidly evolving marketplace for options.
Options are a type of derivative that, in essence, give people or institutions the right to buy or sell a stock, bond, currency or futures contract at a certain price. They form a critical component of trading strategies and are used to protect against sudden price swings. Since it opened, in 1973, CBOE has dominated the market. Trading volume on its two options exchanges accounted for 1.2 billion of the 4.5 billion contracts that exchanged hands last year.
But competition is growing fierce. In recent years, the number of options exchanges has ballooned to nine, with more expected to come online, as the market itself has seen a boom. "The battle is over trying to attract high-frequency traders," said Howard Tai, a senior analyst with the Aite Group, referring to firms whose algorithm-driven trading strategies have come full-force into the options market lately.
To win order flow from this new class of market makers and proprietary traders, exchanges are having to offer faster execution times, through both lower latency and the ability to locate the firms' computer servers physically near the exchange's trading engine.
Most firms are based in New York, or have outposts here, specifically to reduce the lag time that comes with being at a distance from the Wall Street marketplaces. This gives exchanges that are based in the area somewhat of competitive advantage.
By the same token, having its trading platforms in Chicago means CBOE is losing some of the speed game. The 12 or 13 milliseconds it takes to route an order from New York to Chicago headquarters isn't fast enough for today's rapid-fire traders. They can lose thousands, if not millions of dollars by being a fraction of a heartbeat slow to make a trade or pull a quote, said Andy Nybo, principal and head of derivatives research at the Tabb Group, who estimates that market makers and prop traders collectively account for half of the trading volume in the options market.
"By necessity, market makers have to be very cognizant of latency," he said. "You don't want to be last man standing at a price."
Hence the move to Secaucus. Doing so will shave execution times down to as low as 100 to 300 microseconds, said Gerald O'Connell, chief information officer at CBOE. A millisecond is a thousandth of a second, while a microsecond is a millionth of a second.
The exchange's main electronic trading platform will be moved into a facility known as NY4, an otherwise anonymous warehouse that sits alongside Secaucus Road. The size of several football fields, the two-story building is a modern marvel of electrical systems, fiber optics and air-conditioning to keep countless computer cabinets running day and night, O'Connell said. And it is all mostly unmanned.
Already, CBOE houses two of its electronic exchanges at NY4 – its secondary options market C2 came online there when it was launched in 2010, and it moved an associated stock exchange there from Chicago last year. In addition to its flagship options platform, the exchange also will move the matching engines for its futures exchange and single-stock futures exchange to Secaucus. Meanwhile, it completed its purchase of the National Stock Exchange in Jersey City in January. Operations, however, still will be monitored from Chicago, where its backup facilities will remain.
NY4 is run by the information storage giant Equinix, and it is one of several data warehouses dotting the North Jersey landscape. Most exchange operators, from Nasdaq to Direct Edge to Bats Global Markets, and many trading firms already use similar warehouses in Clifton, Mahwah and Weehawken to store their hardware and connect to the markets.
O'Connell said it's not likely the company will swap New Jersey for Chicago in its name, despite its deepening New Jersey roots. But noting Gov. Chris Christie's recent comments that the Giants should be named after the state in which the team plays and most players live, he joked that perhaps CBOE could come under similiar pressure.
"You might get the governor saying it should be ... if he were to ever notice it."
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