MarketsMuse.com Strike Price section profiles trading systems vendor Dash Financial algorithm-based approach to securing options market “best execution” in the ever-increasing world of options mart fragmentation and the wacky rebate schemes that have proliferated across the electronic options exchange landscape. Below is courtesy of extracted elements from MarketsMedia.com April 20 story “Parsing ‘Best Ex’ for Options Trades”
Achieving best execution in options trading can be far more complex than in equities because of exchanges’ multi-tiered pricing models, which results in hidden transaction fees that may negate the economics of a trade.
That’s according to David Karat, head of sales and marketing at algorithmic trading-technology company Dash Financial.
The equities world is complicated only by fragmentation, because the pricing schedule is based on whether one trades either as principal or agent, Karat explained. “You can go to an exchange and know what price tier your broker is at,” he said. “You know what the maker-taker fees or the rebates are.”
In options, pricing is dependent on a wider range of factors. Orders must be tagged whether they’re a customer, professional customer, broker/dealer or market maker. “All those capacities have different nuances, even the schedules for pricing,” Karat said. “It’s even got down to the point where you’ll have some basket of symbols that, based on certain criteria, if you traded it in a certain time, it will have a different rate structure.”
Dash Financial launched in 2011 to provide technology that would enable traders to gain a greater level of transparency into their orders. “The idea behind Dash was to build a firm that was completely transparent to the client using ‘best-of-breed’ technology and show the client everything that we did all the time,” Karat said. “We have a dashboard that shows every aspect of the routing as it’s happening. As the order trades, they’re seeing where we’re routing it, why we’re routing it that way and everything else.”
Dash Financial has launched Blitz, a trading algorithm focused on aggressive liquidity capture. One of the biggest issues facing the marketplace today is institutional traders’ inability to clear the screens as displayed on order arrival.
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