Global trading platform operator BATS Exchange will offer new routing services on its BATS Options trading system from 1 October 2010, including access to multiple market centres.
The US-based options exchange, which was launched in February 2010 and completed its initial rollout in May, plans to introduce its new Parallel D smart order routing strategy by 1 October, which will alongside the existing BATS+ and CYCLE routing strategies. The move follows regulatory changes last year that introduced the concept of private linkages between exchanges, replacing the mandatory shared hub previously operated by the Options Clearing Corporation (OCC).
“Operating a low-latency smart order routing type service is not the business of the OCC, nor should it ever have been,” Jeromee Johnson, vice president and head of BATS Options, told theTRADEnews.com.
Under the new routing price structure, orders executed via the BATS+ destination-specific routing service (BATS+AMEX, BATS+ARCA, etc) are charged at a low liquidity removal fee, which the firm claims is often lower than direct access fees charged by other market centres.
“We are simplifying the way in which options market participants access liquidity from multiple market centres,” said Johnson. “We want to bring a more level, understandable price schedule to the market to give the users a well-defined price point that they can understand.”
For orders utilising BATS' new smart order routing strategies, for example via Parallel D or CYCLE, the exchange operator will charge US$ 0.30 per contract for customer participants regardless of executing venue, or US$ 0.50 per contract for firm and market maker capacity participants. All orders will first sweep the BATS Options book before being routed to other markets. For executions on the BATS Options book, members receive a US$ 0.20 rebate per contract for adding liquidity and are charged a rate of US$ 0.30 per contract for removing liquidity, regardless of member capacity or product type.
Both CYCLE and Parallel D were originally designed for the equities market but have been adapted for options usage.
“We're saying, send the order here to BATS, give up the chance to match it and interact with it, and we'll pick it up and take care of it for you. And it will be cheaper for you,” added Johnson.
However, some observers emphasised the importance of resident liquidity in attracting new business in the highly competitive US equities options market. “It's refreshing to compete on price, but at the end of the day, investors look to route their order flow based on where the liquidity exists and what type of strategy they're following,” commented Andy Nybo, principal, at research consultancy TABB Group.
“The options industry is in a state of flux. It is a hyper-competitive environment, where all exchanges are fighting tooth and nail to attract liquidity. I don't think any exchange can rest on its success or just their fees. You also need to provide significant liquidity, robust technology, and the best market model to attract the right type of users and trading strategies.”
Nybo added that while BATS had a robust technology platform and an ownership structure that includes a number of large options firms, “the challenge will be to attract order flow and liquidity”.