Ballista Unveils Electronic Platform to Aggregate Options Liquidity In Fragmented Market

Ballista is targeting over $1 billion in available commissions from participants that execute delta neutral trades, which Newhouse calls "a niche market but a fairly large one." In a delta neutral trade, there are two or three options legs tied to a stock at a pre-defined price and delta of a stock. The delta implies the quantity of stock that will trade in a ratio to the option. "If the delta is defined as 100, that means for every option on that underlying stock, "I'm going to trade 100 shares of that stock," explains Newhouse.

As a liquidity pool for block options trades, Ballista will seek to match orders against one another. "The idea of sweeping the public markets is an ancillary part of the system," says Newhouse. In a block option transaction where there is no stock involved in the trade, Ballista is confined to execute within the options national best bid or offer (NBBO). However, if someone is doing a delta-neutral trade, "We are able to reprice the option and stock component. The stock can print outside the NBBO," says Newhouse.

Ballista is using the SIFMA 611 exemption, which defines the fact that it is able to trade the stock outside the NBBO as long as its tied to an option-contingent trade, says Newouse. SIFMA initiated the request for an exemption and was granted the exemption last year.

Ballista will seek to bring together initiators such banks and hedge funds seeking liquidity and contras who are providing liquidity or trading against those initiating orders, says Newhouse. (Ballista will screen participants based on creditworthiness, size, trade volume and frequency of participation in the initiator vs. contra role.) Broker dealers often seek liquidity on behalf of their customers, but they're also providing liquidity to that delta neutral trade, he says.

The system will provide a FIX-based interface supporting programmatic orders from algorithmic trading desks and electronic market making desks. (However, Ballista doesn't want to be in the front-end business, Newhouse says. He'd much prefer that participants use their order management systems (OMSs) and DMA platforms connect to the platform via a FIX gateway.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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