In a move to aggregate liquidity in the fragmented options market, Ballista, a start-up broker-dealer, is announcing today the first equity options liquidity pool that will provide electronic access to public and non-public liquidity from banks, hedge funds and market makers.
Pending regulatory approval from FINRA to register as a broker-dealer, Ballista will launch the new electronic platform focusing on block options and complex strategies like delta neutral trades, as early as May 2008. Today, April 21st, Ballista is going into beta testing with light trading to test the system and make sure the business logic and functionality works.
In a statement, Robert Newhouse CEO of Ballista cites the phenomenal growth of the options industry. "However, the expansion of new market participants and exchanges, as well as the introduction of new regulations such as the penny pilot, have led to a highly fragmented marketplace, " warned Newhouse in the release.
Ballista was formed in the past year to solve the problem of fragmentation in the options market. "We're trying to aggregate active liquidity that exists on an exchange as well as the passive liquidity that is not listed anywhere but exists in the mind of a trader," says Newhouse in an interview with Advanced Trading. Today, the passive liquidity must go through a floor broker. If a hedge fund calls a broker, a market maker will take the other side of the trade. "But there is no way to currently advertise an order to the market maker and have them respond," says Newhouse.
Ballista has developed an electronic trading platform that ties together equity and options trades without the need for intermediaries such as floor brokers. "The idea is a single electronic platform that can scrape liquidity from the public markets while accessing passive liquidity from hedge funds, broker dealers and trading desks," says Newhouse, an industry veteran who has held management roles in technology design, engineering and platform implementation at Island ECN, ABN AMRO, TORC Financial and Orbit II Partners.
In addition, Ballista is sourcing liquidity from public exchanges, leveraging the dark pools for equity trades, and it's tapping the complex order books at the ISE and CBOE. "We aggregate liquidity from stock exchanges and complex order books. Our system will look into the options exchanges and equity exchanges and when both components are in line, we will trade both as a set," says Newhouse referring to delta neutral trades. However, Ballista will never post an order. "We never want to advertise to the world. Everything we send is an immediate or cancel to the public market," says Newhouse.
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