CBOE Direct runs from 7am to 8.15am - before the beginning of regular trading, which is 8.30am Chicago time.The exchange had planned to launch the system on June 1, but postponed the start date to allow technology staff to spend more time connecting brokers. The September 11 attacks pushed the date further back to the end of October, O’Connell said, adding, "We’re not too far off from where we expected to be."
In the first week, trade volume on the CBOE Direct system tripled from 20 to 60 trades, with five liquidity providers signed on through the proprietary CBOE Market Interface API (application provider interface), dubbed CMI. The CBOE infrastructure also supports the older Compass system, which routes orders only. A number of firms have begun routing orders using FIX 4.2 over connections installed by Javelin Technologies, but "at a slower rate than they are connecting through CMI", O’Connell claimed. "Brokers aren’t moving to FIX as rapidly as we’d expected."
CBOE Direct will compete with a flurry of electronic platform launches, many of which operate with full regulatory approval. The Pacific Exchange merged with Archipelago and used its technology to migrate its floor-based equities trading onto an electronic platform last month in a venture called the Archipelago Exchange. Meanwhile, Brokertec Futures Exchange has gained regulatory approval from the Commodities Futures Trading Commission and plans to launch by November 30.
CBOE Direct is capable of trading in tandem with the exchange’s 1,402 floor traders, but the exchange’s board has been reluctant to approve that level of operation, or anything that might be perceived as cannibalisation of the volume handled by the floor, O’Connell said.
Even though the International Securities Exchange, the all-electronic options exchange, inched up to third place in share volume last month, O’Connell is not intimidated. "We’re not worried about the technology," he said. "We have a membership structure that isn’t ready to migrate [to full electronic trading]. We have a technical edge over ISE, and it’s only for political, not technical reasons, that we are not competing directly with them."
Analysts said the digitisation of exchanges is inevitable and that the electronic ventures of some of the more traditional exchanges are half-hearted.
"I think CBOE Direct is sort of a reaction to what’s going on outside their floor, which is electronic matching everywhere else," said Sang Lee, an analyst at Celent Communications. "I don’t think they’ve worked very hard marketing [CBOE Direct] to the members."
Lee points out that the Chicago derivatives exchanges with electronic matching platforms - the Chicago Mercantile Exchange with Eurex’s Globex and the Chicago Board of Trade with a/c/e - have a history of gradually ratcheting up the operating hours of their platforms to avoid unduly upsetting their floor traders.
"That’s the traditional way of going about these things: open up for a couple of hours, then a few more, and then you get critical mass," Lee said. "It’s like detox." But if a fledgling matching system should experience a large technical failure before it achieves that critical mass, it may never regain member confidence, Lee added.
There are no plans to 'commercialise' CBOE Direct in the way the Philadelphia Exchange sold eVWAP to a vendor, or in the way OM Stockholm, Euronext or Eurex have sold their exchange technology to other exchanges, O’Connell said.
The week on Risk.net, July 7-13, 2018Receive this by email