HedgeStreet gets liquidity boost

Susquehanna International Group, a Pennsylvania-based market-making firm, and DRW, a Chicago-based proprietary trading organisation, have become market-makers on HedgeStreet, a California-based online market-place for retail investors.

"It's led to a profound increase in trading volumes on a daily, and certainly on a monthly, basis," says Steve Race, chairman and chief executive of HedgeStreet. "It's bringing more people into the market-place because one of the keys to any exchange is its liquidity. People want to know not only is there liquidity to get in, but also is there liquidity to get out?" The exchange broke through its daily volume record, with 25,000 contracts having traded on March 22. That represents a 10-fold increase over the past year.

According to Susquehanna's estimates, volumes have increased by about 200% since it started making markets on February 1. "This is from admittedly a small base. But we see it as an encouraging sign that liquidity is adding value to the platform," says Eric Noll, global head of strategic relationships for Susquehanna. DRW entered the market at the beginning of March.

Both companies also became preferred shareholders in HedgeStreet. Along with the Chicago Board Options Exchange (CBOE), the three firms invested a total of $10 million in December 2006. Disaggregated figures were not released. However, in a separate deal, the CBOE invested $2 million and received a 17.6% stake in the exchange in early 2006.

Offers

HedgeStreet offers futures contracts in $100 lots on gold, silver, crude oil, natural gas and five currency pairs, as well as binary contracts on the same underlyings, plus house prices and interest rates. The firm plans to offer $1,000 contracts geared towards institutional investors by the end of the second quarter. The larger contracts will be based on the consumer price index, non-farm payroll and hurricane events.

Race says the exchange is also closely watching how the regulatory agencies respond to the Chicago-based US Futures Exchange's (USFE) latest contract. The USFE plans to list a binary future based on the fate of the Chicago Board of Trade by late April, which has received competing bids from the Chicago Mercantile Exchange and Atlanta-based IntercontinentalExchange. "If it's an area that does pass muster across the board, then we'll take a look at mergers and acquisitions from a binary basis. It's certainly an arrow in the quiver that we'd like to have," says Race.

Jayne Jung.