SPECIAL REPORT Exchange Technology
Fast Technology Drives
BOX’s Quick Growth,
Says Vice Chair Easley
BY ALEXA JAWORSKI
It becomes very logical to help the
users strip out the other pieces that
slow down the response time. That’s
the obvious business reason for it—
the more your participants are confident of reacting quickly to market
conditions, the more likely they are
to post aggressive markets.
The Boston Options
Exchange may be one
of the smaller U.S. options venues, but acting chief Will Easley
says its technology
platform is second to none.
Last month, the Boston Options
Exchange (BOX) saw average daily
volumes of more than 719,000 contracts, a 7 percent gain from 672,000
during the same period last year. And
BOX reported 37 percent growth
in daily volume in 2008, to 706,000
from 517,000. While Easley, who is
also vice chairman, attributes the
increase in part to overall industry
growth, he also credits its Sola trad-
ing platform, which was developed
by the Montreal Exchange.
Easley noted that the derivatives
system’s reliability and processing
capacity allow his exchange to “
accommodate more professional algorithmic traders, which is very good
for us.” BOX began the migration to
Sola in 2006 after the Montreal Exchange—now part of TMX Group,
along with the Toronto Stock Exchange—increased its holding in
the venue from 21 percent to 53
percent. BOX’s other stakeholders are Citadel Derivatives Group,
Citigroup, Credit Suisse, Interactive
Brokers, JP Morgan Chase & Co.,
Morgan Stanley and UBS.
Easley, who has been leading the
venue since chief executive Scott
Morris stepped down about a year
ago, sat down with Securities Industry
News at the 2009 Options Industry
Conference in Weston, Fla. to discuss
the exchange’s technology projects.
Easley joined BOX as project manager in September 2001, prior to its
2004 launch, and has been a consultant for the Montreal Exchange and
Euronext in Paris, concentrating on
What are the major differences
between your market model and
those of your competitors?
There is really only us and NOM
[Nasdaq Options Market] that are
purely price-time priority. Everybody else has customer priority, specialists’ privilege. That’s something
that suits us very well to attract the
algorithmic traders who tend to
come from the equities and futures
worlds, which are price-time priority. We’re one of three exchanges
that use maker-taker pricing—NOM
does and NYSE Arca Options does
as well. I think people are probably
surprised that both payment-for-or-der-flow and maker-taker are still
there and coexisting, so perhaps
they’ll coexist for some time. In
some ways, maker-taker pricing is a
bit of a detail. The fundamental one
is that we are price-time priority.
the electronicization of trading environment in Asia, South America,
Canada and Europe.
BOX is moving its data center from
a Level 3 Communications site in
New Jersey. Why are you looking
for a new facility?
We have three candidates and it is
probably best not to say, as all are
still candidates. All are New Jersey
based. The logic for it is very obvious:
Collocation five, six years ago didn’t
matter so much. When the processing time of the trading engine was,
for example, 100 milliseconds, collocation was not a big deal. When your
trading engine and processing times
are hundreds of milliseconds, it becomes absurd—then the user has 10
or 12 milliseconds due to geography.
There’s not much point in trying to
get rid of 12 milliseconds if your processing time is 200 milliseconds, but
when you’re down at 1 or 2, all of a
sudden 12 is a big deal.
With Sola, which is so much
faster, we’ve gone from hundreds of
milliseconds to 1 or 2 milliseconds.
What are your selection criteria for
the new center?
We’re one of the small guys, so you
always want to make it as easy as
possible for people to use you. You
don’t have as much commercial clout
as a bigger exchange, where people
have to be there. One part of the logic is you want to go into a location
where your competitor is, because
all the brokers and market makers
are already there. If they’re there
because they’re connecting to the
CBOE, ISE or NYSE, it becomes
very easy to just have another bridge
to connect to BOX.
A second criteria: There can be a
logic to being where either the NYSE
or Nasdaq or Siac [Security Industry
Automation Corp.] is because changes in the broadcast of the underlying
share are the main driver of updates
that are quotes. If someone can receive the update quicker, that means
you’ll be faster. The other criteria are
very practical ones, such as cost, obviously, and the level of service provided in terms of scalability.
Are you embarking on any other
technology projects over the next
year?
In terms of functionality, we are
building the software that will allow us to offer a facilitation, block
trading, solicitation-type mechanism
which we’ve never had. It’s a piece
of the marketplace our competitors
are all in that we’ve never been in.
There is 20 percent to 30 percent of
the marketplace we’ve been shut out
of. We hope by the end of the year to
have that up and running. We’re also
beginning to develop a complex order
book—not tons of bells and whistles,
but it’s a start. We’re also finishing
off a dramatic increase in capacity
that we’re testing right now.
The Chicago Board Options Exchange is preparing a New York-area exchange, and former PHLX
executives are reportedly looking
to launch what would be the ninth
options venue. Is there room for
more?
It depends on how you define room.
We know for a fact that an exchange
can make money—500,000 to 600,000
contracts a day—if you control your
costs. If you take that as your definition and you divide 14 million contracts a day by 600,000, maybe there’s
room for 20 exchanges. That may not
be the best way to look at it, though.
What matters for a new exchange is if
you have a persuasive service proposition, if you have an innovation and
have something the others do not offer. I think basically all the different
possibilities and service packages are
pretty much out there between the
seven of us, so I have my doubts.
But we don’t worry about anybody
coming in too much, in the sense that
we don’t necessarily think they will be
pulling market share off of us. I think
the people who use us are using us for
a very specific reason—unless somebody duplicates that price-time priority we have, I think it will come out of
somebody else’s pocket. ■
