Buy-side firms in the US are increasingly turning to multi-leg options orders and new algorithmic strategies for options as exchanges continue to expand complex order book functionality.
Complex order books are pools of liquidity where multi-leg orders can rest. To meet the increased demand from buy- and sell-side participants to route orders to these pools, US options technology firm LiquidPoint, a ConvergEx company, has developed algos designed for precisely this purpose and take-up from the buy-side has been strong.
“Liquidity in complex order books is very fragmented and users are looking for a suite of one-size-fits-all execution tools to address this fragmentation of multi-leg liquidity,” said Joe Corona, director of strategic planning at LiquidPoint.
The LiquidPoint algos are modeled on the firm’s single-leg algorithms and include complex order book sweep, reserve, hidden and pulse strategies. They were released two weeks ago and Corona said they have proven more popular than expected.
“The buy-side needs to be able to execute strategy trades, many of which will include multi-leg orders to deal with the multi-dimensional market direction and implied volatility views,” he explained.
LiquidPoint’s new algos can also seek liquidity in the firm’s own options dark pool, NXP, where clients can choose to send both single and multi-leg trades first to try and pick up liquidity before routing to the market.
“Complex order books are an explosive area of growth in the industry, partially driven by the popularity of weekly options, which forces people to roll over their inventory every week and the mechanism used is often a multi-leg order,” he said.
This week, the International Securities Exchange (ISE) revealed plans it sought to open a second options market after it filed relevant documents with US regulator the Securities and Exchange Commission. Topaz, as the venue will be known, would compete with established derivatives markets operated by CBOE and Nasdaq OMX and NYSE Euronext.
ISE, owned by German market operator Deutsche Börse through its derivatives exchange Eurex, offers equity and index options, FX options based on foreign currency pairs and market data tools.