Tag Archives: ICE

Options Mart CBOE Rumored to Merge with BATS Exchange

September 23, 2016 MarketsMuse Curator Leave a comment

Following a decade of new exchange launches, which led to a series of aggressive fee competition to attract order flow and elevated the ‘pay-for-order-flow’ game, the more current trend towards consolidation, fueled by an industry-wide race to zero fees and commissions is sparking rumors that the CBOE and BATS are planning to marry..This on the heels of the still uncompleted deal between Deutsche Boerse and London Stock Exchange (LSE), a transaction that according to one MarketsMuse “has been put on hold pending further impact analysis” of this late summer’s BREXIT vote.”

(Traders Magazine)-CBOE Holdings’ reported talks to acquire Bats Global Markets would be the latest in a long line of exchange tie-ups, with one common denominator: the drive to have more trades execute under the same roof.

“Exchanges are a scale game,” said Brad Bailey, research director at Celent’s securities and investments practice. “Running exchanges in a regulatory, market-structure-complex world is tough. There is tremendous operational leverage available to bigger, more complex exchanges.”

Yesterday, Bloomberg News reported merger talks between CBOE and Bats, citing people familiar with the situation. A deal could be announced within weeks, thought it still may not happen, according to the report.

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CBOE’s eponymous options exchange is the largest of 14 in the U.S., with market share of 26.5% this month, according to OCC data. Chicago-based CBOE has a virtual stranglehold in the index-options business via its dominant CBOE Volatility Index (VIX) product.

Bats, which purchased rival exchange operator Direct Edge in 2014 and itself went public earlier this year, runs the BZX and EDGX options exchanges, which have a combined market share of about 12%. Bats also operates four of the 13 U.S. equity exchanges, with a combined market share of about 20%.

Equity and options exchange operator Nasdaq bought options bourse International Securities Exchange earlier this year. In the equities space, IntercontinentalExchange bought New York Stock Exchange in 2013. In Europe, Deutsche Boerse and London Stock Exchange are planning to merge. And there have been a host of exchange mergers over the past half-decade that have been discussed or proposed but ultimately didn’t happen.

“Think about the size and scale across asset classes of most exchanges,” Bailey told Markets Media. “ICE gobbled up NYSE, DB/LSE are attempting a marriage despite the complexities that Brexit has added to that equation.”

MarketsMuse editors are gearing up to profile ‘What’s Next?’ Anti-Trust Fever Sweeps Regulators as Exchanges Consolidate to Revert To Predatory Pricing Model..” To read the entire story CBOE Rumored to Merge with BATS Exchange from Traders Mag, click here

Tech Talk

NYSE Uses Sharp Elbows to Box Out IEX; Hijacks Technology

April 11, 2016 MarketsMuse Curator Leave a comment

The electronic exchange playing field is not for boy scouts. All is fair in love and war. That’s the message NYSE is sending to upstart “Investors Exchange” aka IEX, as the world’s most formidable financial market trading platform is simultaneously lobbying SEC regulators to block IEX’s application to be designated as a full blown exchange because its speed bump technology slows down important liquidity providers from the HFT world, and at the same time, ICE-controlled NYSE Group is picking the pockets and hijacking IEX’s most compelling order technology for its own use. IEX, which developed a new discretionary peg order type known as “D-Reg” and designed to deliver even sharper pricing for those executing block trades is a secret sauce that purportedly delivers a noticeable $68k in savings on a typical $1bil portfolio execution strategy. Pennies perhaps, but pennies add up when being counted by both buy-side and sell-side commission revenue bean counters. And it’s the buyside who count the most, simply because they provide the fuel that feeds the Wall Street trade execution engine.

In case you’ve been asleep for the past several years, IEX, whose brand was burnished when the firm was profiled in the HFT-slam book “Flash Boys”, is backed with nearly $100mil provided by buy-siders for this value proposition: “Unlike all other U.S. equities trading venues, IEX does not adhere to the principle of price-time priority. Instead, the IEX prioritizes orders by price, followed by broker trades, and lastly time.”

When considering the not-so-subliminal Bronx Cheer filing made recently by NYSE to SEC to promote a new application based on IEX technology, the NYSE unabashedly stated: “we want to create a new order type based on IEX technology. The new order would allow market participants “to serve their customers better, thereby protecting investors and the public interest,”

Fintech wonks might like to believe that intellectual property means something that protects proprietary innovation that others cannot infringe on, but in the regulated world of financial markets, the so-called “what is in best interests of investors” always trumps IP. The take-away message for Brad Katsuyama, the former electronic trading and sales wonk for RBC Capital Markets and brain child of IEX of the ‘altruistic’ platform backed with nearly $100 mil thanks to a group of buy-side flavored investors “All is fair in love and war when it comes to so-called intellectual property within the world of regulated financial markets.”

IEX investors include an assortment of buy-side firms, along with world-famous technology entrepreneurs and even casino magnate Steve Wynn. That said, MarketsMuse curators have a personal note for Wynn:

Dear Steve: Good news. Playing in the world of electronic stock markets is a contact sport. Get your elbow pads on.”

Gretchen Morgenson of the New York Times tells the story in detail via her 10 April NYT column here

ETF News

ICE Plans for More Active-Traded ETFs Put On Ice

October 30, 2015 MarketsMuse Curator Leave a comment

The NYSE, a division of Intercontinental Exchange (ICE) has encountered a slippery slope in the exchange’s effort to secure a bigger role in the ETF marketplace through a scheme that would expedite the creation of so-called actively-traded ETFs, which some MarketsMuse followers have dubbed ‘exchange-traded funds on testosterone.’

WSJ-The New York Stock Exchange this month withdrew a proposal to the Securities and Exchange Commission that would have expedited the regulatory approval of some exchange-traded funds, a setback for the fast-expanding ETF industry.

What the Intercontinental Exchange Inc. unit sought is known as a generic listing standard, which would have cut months off the process to list actively managed ETFs. Listing currently requires a fund-by-fund evaluation by the SEC that can take several months. The SEC reported the withdrawal on Oct. 19.

Generic listing standards for many index-based products, which seek to mimic the performance of a particular index, have slashed the time and cost of getting an exchange-traded fund to market, helping fuel a record number of new issuers this year.

The setback for efforts to secure similar standards for actively managed products highlights the limits facing the industry after years of rapid and broad growth.

The SEC declined to comment on the withdrawal. A person familiar with the process said there were concerns at the SEC about the open-ended use of derivatives that could occur if the rule were approved. A narrower proposal could limit the types of new funds or tools they use should the SEC eventually approve the listing standards.

For its part, NYSE still sees value in a faster approval process for these funds, an exchange spokeswoman said.

A person familiar with the matter said NYSE would tweak and refile the proposal.

“I think it’s the SEC being extra cautious,” said Todd Rosenbluth, head of ETF research at S&P Capital IQ. “I think they want to fully understand the risks that investors take on with these products.”

Exchange-traded funds hold baskets of stocks, bonds or other assets and trade on an exchange like a stock. Most are passive, with holdings dictated by the rules and weightings of the index they are designed to track. Actively managed products, in which a fund manager can change the holdings, account for only about 130 of the 1,787 exchange-traded products in the U.S., according to ETFGI, a London-based consulting firm. They have about $21.6 billion in assets, a fraction of the some $1.98 trillion in all exchange-traded products in the U.S.

But actively managed funds represent a frontier for ETFs, and exchanges are eager to speed up the process of listing them, particularly as the competition for listings heats up.

For the full story from WSJ, please click here.

Strike Price, Tech Talk

ICE-NYSE Deal: Derivatives Exchange CEO Gets Icey Response From Some Sell-Side Stock Jocks

December 26, 2012 MarketsMuse Staff Reporter Leave a comment

Within the first several days since the December 20 proposed merger announcement between NYSE Euronext and IntercontinentalExchange (ICE), there has been no shortage of public responses, comments and of course, a lawsuit opposing the deal (filed last Friday by the New Jersey Carpenters Pension Fund).

For those following this deal, today’s WSJ column by Jason Bunge profiles the mindset of ICE CEO Jeffrey Sprecher, and it speaks volumes. It also raises concerns on the part of Wall Street’s biggest firms, who, along with exchanges, reap tens of millions of dollars in fees that more than a few consider to be wrought with conflict, and are necessarily loathe to put the genie back in the bottle.
Here are some poignant extracts from today’s WSJ piece:

The chief executive and chairman of IntercontinentalExchange Inc., which last week unveiled plans to buy NYSE Euronext NYX +0.32% for $8.2 billion, isn’t steeped in the business of equities trading. But he has plenty to say about it, including some views that challenge the prevailing wisdom and business models of many securities-trading firms.

The 57-year-old, who started IntercontinentalExchange 12 years ago after a career in the electric-power industry, opposes paying incentives to lure big traders onto stock exchanges, a widespread practice that exchange officials say is necessary to keep their markets in motion. Mr. Sprecher also objects to the dispersion of stock trading across scores of exchanges and private markets, a trend embraced by banks and trading firms that earn profits by trading shares away from exchanges.

Mr. Sprecher also has criticized the common practice by the NYSE and other U.S. stock exchanges of paying incentives to traders that are active buyers and sellers of securities. The exchanges say they pay such rebates to help ensure that there are traders to take the other side of orders placed by mutual funds or individual investors.

Paying these incentives has fostered a system that encourages some traders to heavily buy and sell without much concern for holding a given stock—making such traders more likely to abandon markets when conditions turn volatile, Mr. Sprecher said in Chicago last year.

Some industry executives are skeptical that Mr. Sprecher could change the practice, known as “maker-taker” pricing, even with the clout of the Big Board at his disposal. Doing away with it could require changes to many firms’ trading strategies, and an exchange could lose business as some customers shift to rival markets that still pay incentives.

Some of Mr. Sprecher’s views are consistent with those of the Big Board. Like NYSE executives, Mr. Sprecher has criticized the diffusion of stock-trading activity across scores of exchanges, brokerages and private “dark pool” markets, warning that the trend has damaged investor confidence in stock investing and played into catastrophes such as the “flash crash” of May 2010.

Traders say that the stock market is more convoluted and interconnected than the futures trading world Mr. Sprecher is used to, thanks largely to rule changes designed to boost competition among stock exchanges and brokers.

“The NYSE is a much different world, and it’s much more difficult to get any market-structure change done,” said Neil Catania, chief executive of MND Partners Inc., a brokerage firm on the floor of the NYSE. “But we need new thinking.”

The full article is available to WSJ online subscribers by clicking here