In order to keep up with the demands of today's high-volume electronic markets, the Chicago Board Options Exchange plans to migrate its CBOE and C2 options markets as well as its CBOE Futures Exchange to an internally developed matching engine beginning in August, according to CBOE senior management.
The new system, dubbed Vector, will replace the current internally developed CBOE Direct platform, which the exchange launched in November 2001 and runs all three markets.
“Trading volumes on the exchanges have grown and the growing demands of the higher-frequency trader require us to keep up,” said Ed Tilly, CEO of the CBOE. “It’s difficult to keep up a system that was designed with your customers’ needs from 14 to 15 years ago, and meet their needs for today and tomorrow.”
The current trading engine served the CBOE community very well, but the CBOE leadership decided it was time for an overhaul. “We developed Vector starting from a blank piece of paper beginning in 2014,” Tilly said.
The buy-or-build decision was a close call, as at least one unspecified third-party technology provider delivered a very impressive pitch to handle the job. Ultimately, the call to stay in-house was made in deference to the customization of the CBOE product suite, Tilly said.
Besides improved transaction speeds and scalability, the new matching engine will also incorporate new risk management tool for trading firms.
CBOE Direct already incorporates risk-management tools, which are mandated on the futures side by the U.S. Commodity Futures Trading Commission and some tools the exchange operator included to cooperate with the industry and the U.S. Securities and Exchange Commission’s desire to also include them on the securities side, explained Tilly.
One tool that will be available to all traders will be a more granular version of the configurable risk profile, which has been only available to CBOE market makers.
An existing feature lets market makers set a limit the amount of trades over a certain period per product class. “We’re enhancing that so that instead of saying ‘per class,’ we can say ‘per trading firm’ across the universal class of products,” Tilly added.
The exchange operator expects to roll out Vector to the CBOE Futures Exchange starting in August and then subsequently to its options exchanges, according to CBOE officials. Given how quickly markets are evolving, Tilly said he would expect the new system's lifespan to be considerably shorter than 15 years.
Featured image by /Dollar Photo Club