Trading Tech Talk 12: The Markets Are Out of Sync

CTO Interview: Today we feature special guest co-host Peter Maragos, CEO, Dash Financial.

Catching up with Dash:

• When Peter was last on Dash had just acquired the LiquidPoint business from Convergex with the help of private equity firm GTCR. Now they've just partnered with Flexpoint Ford, another PE firm. What was the impetus behind the second transaction?
• Dash has an impressive suite of diverse products and services - smart order routers and algos, the Dash360 analytics platform, trading workflow tools, an options ATS and even human traders.
• What are the upcoming projects/initiatives at Dash?
• Peter's views on crypto trading

Hot Topics in Tech: Smart Routers

• Today's topic was inspired by the following listener question: Question from See16: Can you please do a deep dive into smart routers on a future program? They are the secret sauce of the market these days but no one really seems to understand how they work. Shedding some light on the otherwise dark world of routing would be a great service. Smart Routing Deep Dive: Quite a few things happen after you hit the trade button in the options market - probably much more than most people realize. Your order has to get routed from your broker/execution platform to the exchange. But it's not a simple path. That's where smart routers come in. What is a smart router? What do they do? What makes them smart? What are the different rules/filters/configurations that most smart routers have to consider? - NBBO, exchange fees, size, exchange pricing model, PIP auctions, payment for order flow rates, etc. What about resting orders? Are the smart routers constantly monitoring them and rerouting if necessary? Why do we need them in the options market? How do options smart routers differ from equity smart routers? Why have smart routers become so controversial in the options market? Spreads: This is the Achilles heel for many "smart" routers since every exchange has its own spread book and they don't talk to each other. So you could easily work a spread order that lines up on one exchange but, because your order was routed to a different spread book, your trade isn't filled. How do we overcome the spread routing issue in 2018? Is it a tech problem or a regulatory problem? Final thoughts/takeaways on smart routers?

The Inbox: Listener questions and comments

• Question from Nikes T: Hey Options Insider! Love the network particularly the tech talk. We need more episodes! On an upcoming show do you think you guys could talk about why dark pools don't exist in the options market? Is it a tech limitation or something else?
• Question from LaLaLad: Does block chain have any practical use on the trading front or is it all just back office stuff?

Mark is joined by co-host Matt Amberson, Principal at Option Research & Technology Services (ORATS).

CTO Interview: Our guest today is Michael Mescher, Founder of Gammon Capital.

He discusses:

• What is Gammon Capital?
• You've talked a lot about the dangers of selling volatility and how short vol managers aren't worth their fees. What are your thoughts on the maelstrom of the past week? How have your funds fared over the past week?
• Machine learning is a hot buzzword these days, but what are some of the practical applications that you're seeing in the financial markets right now? Is it ready for prime time or still in the nascent phase?
• Unsupervised learning/ fundamental strategies?
• Supervised learning / quantitative strategies?
• Classification vs. Regression problems
• Hiring machine learning specialists vs. Products specialists
• 90% of the world's data was created in the past two years. Is that an opportunity or a terrifying statistic?
• Testing models on out-of-sample data vs. carefully constructed back tests?
• Should managers be concerned that the robots are coming to take their jobs and their clients?

The Inbox: Listener questions and comments

• Question from BLAL9 - What do you see as the outlook for AI and machine learning in the financial management space going forward? I see a lot of smoke but is there much fire? Are there many funds currently using it to generate alpha right now?
• Question from Tonc - What are the best ways to invest in blockchain right now?
• Question from Mark Kalis - How are comps getting the edge on us in trading? Is it just pure correlation trading?
• Comment from tDok3 - No debate to be had there. It's a simple & foregone conclusion. Higher fees ==> lower participation perhaps goal for CB market manipulation
  In response to tweet: Are exchanges shooting themselves in the foot by continually hiking market data fees?
• Question from See16 - Can you please do a deep dive into smart routers on a future program? They are the secret sauce of the market these days, but no one really seems to understand how they work. Shedding some light on the otherwise dark world of routing would be a great service.

Today we have special guest co-host Rob Brogan from Flextrade.

Hot Topics in Tech: What's going on in fintech?

• NYSE wins approval for 'speed bump' in trading
• Bloomberg is taking a shot at the New York Stock Exchange (again)
• Exchanges becoming tech firms
• Machine learning is transforming investment strategies for asset managers

CTO Interview Featuring Jesper Alfredsson, President Americas at Itiviti.

He discusses:

• What is Itiviti?
• The history of CameronTec
• Who is the target market?
• Finding the middle way for infrastructure expansion
• Don't spend time on the plumbing
• Recent upgrades, including smart order routing for options orders

Hot Topics in Tech:

• The tough new cybersecurity rules in New York
• Risk managers under pressure to cut down on post-crisis spending
• Hedge funds adopt novel methods to hunt down new tech talent

CTO Interview with Jack Schwager: Author extraordinaire and now co-founder of Fund Seeder. Mr. Schwager is the author of Market Wizards, Hedge Fund Market Wizards, A Complete Guide to the Futures Markets: Fundamental Analysis, Trading Spreads and Options (and the second edition just hit store shelves!)

He discusses:

• Was he surprised by the reaction to Market Wizards?
• How did that book come about?
• His new project in the trading tech space: FundSeeder
• What is FundSeeder?
• How does the funding process work?
• Do traders have to reveal their secret sauce in order to receive funding?

Hot Topics in Tech: What is on our radar from a tech perspective?

• Tech firm creates Trump monitor for stock markets. A London-based Fintech firm Trading.co.uk is launching an app that will generate trading alerts for shares based on comments made on social media by Donald Trump.
• Launching an open-outcry trading floor? How very 21st century.Box Options Exchange is building the first new trading floor in Chicago in decades - Boyle expects to attract traders who prefer open outcry for big orders and keep them with a more efficient 21st-century floor model.

Hot Topics in Tech. Today we are featuring Alexander Lamb, Head of Business Development at The Technancial Company. Alex was previously a guest in March 2016. (You can access that episode here.)

• Risk Management and AI: effective or ??? Its penetration into the business world has brought with it new services which aim to help automate and speed up a range of activities, including financial risk management.
• Wall Street next tech frontier is hacking into emotions of traders. Banks have already set up big-data teams to harvest insights from the terabytes of customer information they possess. Now they are looking inward to see whether they can improve operations and limit losses in their biggest cost center: employees.
• Tech is driving consolidation in the exchange space. CBOE Holdings Inc., agreed to acquire Bats Global Markets Inc. for about $3.2 billion to expand into stocks, ETFs and currencies trading.
• Exchanges defeat appeal of U.S. high-frequency trading lawsuits - A federal appeals court on Friday rejected an investor's attempt to revive lawsuits accusing major U.S. exchanges of selling early access to market data to high-frequency traders, the subject of Michael Lewis' 2014 best-seller "Flash Boys."

The Inbox: In which the listeners take control

• Question from Andrew Simmons: There is lots of acronym soup in trading tech. Two terms I have heard bandied about quite a bit are EMS and OMS. Can you explain these terms and maybe their similarities or differences?
• Question from JVigs: Are there any independent third party services I can use to analyze my margin and options buying power? This seems like a bit of a dark art these days in the options market. I do not really agree with the numbers generated by my broker and it would be nice to have some data in my corner. So much effort is devoted to trading in milliseconds but this important part of the market remains relatively untapped. Recommendations please. Great hit with Howard from StockTwits. Keep it up.

CTO Interview: Today we are featuring Howard Lindzon, Founder of StockTwits, and Founder of Wallstrip.

He discusses:

• Wallstrip and its flip to CBS
• The genesis and evolution of StockTwits
• Twitter pulling the rug out from under StockTwits
• How does StockTwits generate revenue?
• Stocktoberfest (Register today for Stocktoberfest)

Hot Topics in Tech: IEX finally approved putting a 350 millisecond speed bump in place. Only two stocks will be available to trade on the opening day on Friday with another eight securities will start trading on IEX August 24 - August 29, IEX will begin listing a much wider universe, including all NYSE and Nasdaq-listed stocks. Renaissance Technologies hopes to use physics to battle Wall Street speed demons. Their plan involves algorithms, servers and the worlds most accurate timekeeper currently used for GPS satellites and deep space exploration, the atomic clock.

CTO Interview: Today we are featuring Jason Pang, CEO of Sparkfin.

He discusses:

• What is Sparkfin?
• What makes the Sparkfin Watchlist app unique?
• What was the genesis of this? Were the Sparkfin people just fed up with current watchlist offerings?
• Is the plan to remain a standalone service or to license the app to brokers as essentially a plug-and-play community module?
• Is it possible to execute through the app directly?
• Does Sparkfin offer curated lists as well? How does that work? Who curates them?
• What about paper trading / tracking? Can that be done through the app?
• Any plan to expand beyond stocks in the future?

The Inbox: Listener questions and comments

• Question from Alan Fromme - What is the future of market data? Will we ever see an era when the great monopolies are broken, and this data comes freely, or reasonably available to all?
• Question from NanFan - Caught you panel and the after show on your network. Great job particularly on the market data. I particularly enjoyed hearing the smaller firms perspective. It seems like market data is an endless black hole of costs for firms like that. Is there any hope for new firms in this space when it comes to pushing back on market data fees? Perhaps regulatory relief or a coalition of market data vendors that can push back against the exchange monopolies?

CTO Interview: Today Mark and Henry are joined by Ryan Hansen, President of the new futures brokerage, Tradovate.

They discuss:

• What is Tradovate?
• The benefits of multi-platform trading applications
• Membership pricing advantages
• Futures leading the way in tech
• Does the cost include payment for order flow?
• Will options ever be included on the platform?
• You can find out more at tradovate.com/trial

Hot Topics in Tech: What is happening in trading technology?

• Silicon Valley to the rescue? The Long-Term Stock Exchange
• IEX: all they want is a speedbump
• Trading prompted by social media: CBOE S-Factors
• Petterfy looks at the future of the brokerage space

Hot Topics in Tech: SEC says cyber security biggest risk to financial system. Fed should better safeguard economic data, internal watchdog says. A new trading floor in 2016? The options market turns to old tactic. CME upgrade soothes critics who viewed prior system as unfair. Nasdaq to unleash the machines on insider traders through Smarts investment. Why the SEC should just say "no" to IEX. Can a $24 Billion hedge fund blow the whistle? Citadel thinks so.

Blockchain Roundup: Inside the secret meeting where Wall Street tested digital cash. DTCC holds a blockchain conference. Microsoft Azure partners with R3 blockchain consortium. Red Hat announced the Open Shift Blockchain Initiative. CME Group bites on bitcoin, will now publish daily price.

The Inbox: Listener questions and comments

• Question from Jane Neal: Does Trade Alert or Whats Trading off data on futures?
• Question from George Constopolis: Why is most stock and options settlement still T+3? Can we not get that down to a more reasonable time frame with the current technology?