Preparing for Regulation NMS is priority No. 1 at the American Stock Exchange, where a new team is aggressively revamping the exchange's trading technology. If all goes as planned, the Amex will deliver a hybrid-market-structure trading system that is designed to interact with its floor-based auction market. The goal is to qualify as a fast market under Reg NMS, which is slated to take effect in June 2006. The brain behind the new system is Antoine Shagoury, Amex's EVP and CIO. Shagoury - a former CTO of Instinet - began consulting with the exchange in November 2003 on ways it could compete in the electronic trading and auction market space, and was appointed CIO in August 2004 to spearhead the trading system project as well as oversee operations and legacy systems. WS&T Editor-at-Large Ivy Schmerken sat down with Shagoury to discuss his plans for revamping Amex's trading platform, consolidating legacy platforms and making the exchange more competitive.
WS&T: Will the Amex be a fast market under Reg NMS?
Shagoury: Yes. By definition, we are positioning ourselves to be a fast market or an automated market.
WS&T: What are the characteristics of the hybrid market platform that make it compliant with Reg NMS?
Shagoury: It's a system providing immediate accessibility, immediate interaction, and execution with quotes and orders. It is providing the automated market interaction, which I think is the underpinning of what we're doing and what we're moving into under NMS. That's at the root of the naming of the system as well - based on automated market interaction, we coined [the name] Auction Electronic Market Interaction to give people a better understanding of what we want to do. I'm not trying to over simplify what the system is doing, but, in essence, that's what it is - it's providing the transparency and the immediacy of access into our marketplace. We are providing executions well under a second. We are immediately providing access to our quotes - our Amex best bid and offer. We are providing immediacy of routing of orders in which the Amex has away-market obligations. I think that one piece of the system is the most ECN-like.
WS&T: How does the automated execution component interact with the specialists?
Shagoury: Today, the specialist is central to the process here. We've automated and we've taken away a lot of the manual interaction with the executions that are executable [automatically]. If I have a legitimate quote, and I have an incoming order that's hitting that quote, why should anybody be involved in that interaction? That's immediate execution; that's happening within the system. That is the automated process. There are things in which there should be manual intervention - complex trades and imbalances and things of that nature - and there are things that shouldn't be. If I have orders resident in the book, and if I have natural contras coming into the exchange, there should be no one in between that process.
WS&T: How will this make the Amex more competitive in the future?
Shagoury: It's really about price - it's about performance and it's about cost. What choice am I providing the community? Price is a very strong component of that. How do I show that I'm cost-effective? That's a huge differentiator. And how can I go out and hit that performance piece so if people want that immediacy, they can have it?
If I have a hedge fund come in, they want fast interaction with the market. You say fast money, and in a risk-managed situation, you want to provide that. You don't want to have [the fund] say, "I'm not sending an order to the Amex," because the fund can't afford the risk of executing in that forum. And choice [relates to] if we have an offering in which we can support the less-liquid, the more-complex trades. That's the value that we offer.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio