European options exchanges must introduce functionality that
protects market makers in order to attract prices on screen,
according to market participants.
Panelists at a discussion organised by Orc software said the
trading technology "arms race" had resulted in market makers
being vulnerable to competitors with faster systems. The
result, they said, was that trading had left the screen and was
being largely conducted by telephone, with the exchanges used
simply to cross pre-arranged orders.
Robin Cave, md of equity markets at Merrill Lynch, said:
"[as] people get the faster machines, market-making on exchange
becomes less and less attractive? In Europe you just see quotes
disappear off the screen? Part of the reason is there is very
little incentive to put up with two way-price in a large number
of contracts to be picked off."
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