The fungibility that regulations will deliver in derivatives markets could trigger an arms race in algorithmic trading. However, algo traders will have to reassess their strategies for the new market writes Dan Barnes.
While the mandate from the G20 countries is bulldozing OTC
derivatives onto electronic trading platforms to boost
accountability and transparency, it is also creating an
environment ripe for algorithmic trading.
Automated trading is already having a significant effect on
the futures and options markets although exact figures are hard
to come by. According to data from FOW’s data
service FOWintelligence.com, the volume of exchange traded
derivatives leapt by over 25% in 2010 to 22bn contracts. This
year that record looks set to be topped with 20bn contracts
already traded in the first ten months of the year.
David Feltes, alliance and venture management, at CME Group
estimated recently that between 40-60% of volume in the futures
market is generated by proprietary shops’
algorithms. Craig Donohue, chairman of the CME, has been
reported as saying that proprietary algorithmic trading
accounts for 45% of futures volume on the New York Mercantile
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