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The 1st Regulated Bitcoin Bourse? Frmr Goldman Sachs Algo Trader Pitches LedgerX as a Regulated Exchange

MarketsMuse.com update courtesy of extracts from today’s edition of Traders Magazine.

Yet another coin is being tossed into the fountain of Bitcoin dreams and wishes. The latest aspirant and first to file a full-blown registration for a “Bitcoin Bourse”with the CFTC is “LedgerX”, a company led by former 6-pack broker-dealer and MIT Alumni Paul Chou, who was most recently a Goldman Sachs trader.

According to the filings, LedgerX hopes to become a fully-regulated derivatives exchange clearing house. While at Goldman, Chou was responsible for developing, trading and risk managing algorithmic equity trading strategies for U.S. and Japanese markets. Also, he developed a set of cross-asset strategies and devised a method to unify and optimize the trade flow across hundreds of trading algorithms. Prior to Goldman, Chou delivered trading and spread-risk tracking tools on projects for Citadel Investment Group and Morgan Stanley.

Chou, who serves as chief executive officer of LedgerX, is designing the exchange and currently has filed registration papers, bringing the bourse one step closer to reality. LedgerX’s registration, filed with the CFTC, is open for public comment until Friday, January 30th. On December 15th, the CTFC requested comments on the LedgerX submission.

If approved by the CFTC, LedgerX would be the first federally-regulated Bitcoin options platform and clearing house to list and clear fully-collateralized, physically-settled Bitcoin options for the institutional market. LedgerX has also applied for registration with the CFTC as a swap execution facility and as a derivatives clearing organization on September 29, 2014.

LedgerX is backed by several high profile investors such as Google Ventures and LightSpeed Ventures. Also, Jim Newsome, former chairman of the CFTC and former chief executive of NYMEX, and Tom Lewis, former CEO of both Ameritrade and Green Exchange, currently sit on the LedgerX board of directors.

Simultaneously, to build a Bitcoin derivatives market, he is bringing together corporations seeking to hedge their Bitcoin exposure and financial institutions searching for trading and investing opportunities in Bitcoin.

According to Chou, more than 80,000 entities accept Bitcoin, including brand names such as Dell, Expedia and PayPal.

 

ETF Execution and Algo’s: Bloomberg Says

As electronic trading markets become more fragmented, the majority of large orders are executed via broker-provided execution algorithms.

Typically, implementation shortfall trading algorithms are used to slice the parent order into many small ones and spread them out over the time horizon to minimize the slippage between average fill price and midquote of order entry, through striking the optimal balance between market impact and volatility risk.

Bloomberg Tradebook’s recent study, entitled “Seeking Optimal ETF Execution in Electronic Markets,” shows that trade costs of ETF orders are quite different from those of common stocks.

seeking optimal executionThe team has measured trade costs of ETF orders and common stock orders for various order size groups and compared them side by side within each group. The dataset of the study includes more than 100,000 orders trading US common stocks and ETFs from clients of Bloomberg Tradebook throughout the whole of 2013.

Results show that the median trade cost of orders becomes higher with increased order size for both common stocks and ETFs. However, given the same order size group, median costs of ETF orders are significantly lower than those of common stocks with 95% confidence.

Also, the study shows that ETFs have tighter cost distribution (i.e., lower variance of trade cost) compared with common stocks. This data implies that ETFs have lower median market impact than common stock of the same order size due to the liquidity of the underlying basket in addition to ETF liquidity displayed in the limit order book of the exchange.

As a result, those trading ETFs directly in exchanges can afford to be more aggressive in taking out liquidity without causing as much market impact as trading common stocks would.

– See more at: http://www.ftseglobalmarkets.com/blog/blomberg-tradebook/etfs-determining-final-trade-costs.html#sthash.Fu93JKAB.dpuf

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