While dark pools have popped up like crazy on the equities side, bringing the total somewhere close to 40, there will soon be a new dark pool dimension. U.S equity options.3D Markets is gearing up to launch its Archangel block crossing network for options. The beta version will be available to initial liquidity providers the first week in October, according to Jeromee Johnson, president of 3D Markets. But Archangel won't be completely dark.
"Archangel will provide information about orders in the system through a risk profile," says Johnson. "If a large mutual fund wants to sell say December calls at an X strike price, they can put the order in, and that order is then decomposed into things such as the delta, or the gamma without giving away the underlying."
The options market has different regulatory considerations than the equity side and trades can't execute away from the exchange so Archangel users will come together, settle on the trade details via the platform and then route out to an exchange.
"Once they've agreed on price, within NBBO, the system will send those cross orders out to one of the electronic options exchanges that has an electronic crossing capability to print," says David Mortimer, chairman and CEO of 3D Markets.
The first round of Archangel users will be what Mortimer calls, "relatively well known large option market making firms," as well as several active option trading hedge funds. Participants will be subject to a net capital test to ensure they have sufficient capital and trade large blocks of options.
Johnson acknowledges that the buy side is still in the early stages of electronic options trading and options and derivatives in general, so Archangel will also cater to those that want to pick up the phone. "We understand that and are willing to work with them on that," says Johnson.