Magazine article Modern Trader

Electronic Trading: Where Are We Headed?

Magazine article Modern Trader

Electronic Trading: Where Are We Headed?

Article excerpt

The trading world has entered the new realm of automation and electronic super highways. Here's one industry philosopher's view on how it will impact the trader.

Editor's note: Gary Ginter was a co-founder of Chicago Research & Trading, one of the largest options market makers in the world, now owned by NationsBank. For over two years, he headed GLOBEX, leaving that position six months ago. Today, among other activities, he is president of the board of Oster Communications, the parent company of Futures magazine. With his broad experience and background, we asked for his opinion on the future of electronic trading. Here's his point of view:

Where are we? The siren song of electronic trading has been around for years. Variously touted as the silver bullet for regulators, the panacea for market efficiency, the magical solution for customer protection, the Mother of All Liquidity, electronic trading is today a reality for futures and options, as it has been for securities for a number of years. The systems are showing they can handle the volume and are becoming part of the required panoply of trading paraphernalia utilized by the leading exchanges. Rules to govern this new trading modality are being refined. Traders are adapting. The stage is being set for what?

Where are we headed? For obsolescence -- if you ask some floor traders. I don't think so! The key ingredient in successful participation in the markets is still human judgment.

For nirvana -- if you ask some academics. I don't think so! Liquidity is often more driven by ego than electronics, and regulatory compliance problems are more a matter of human sinfulness than inadequate technical systems.

Then, if not for obsolescence or nirvana, where are we headed?

Toward industry-wide, systems-driven consolidation, concentration and commoditization. Things will get bigger, faster, cheaper and the overall result will be a magnification of the centrality of trading skill.

Consolidation is being driven by economies of scale. Floor traders are finding it economically more efficient to be part of a trading team. Upstairs trading firms need more capital, larger and more powerful systems and ever more personnel to compete in a world of larger buy-side and sell-side institutions.

Exchange consolidation will follow the same economic logic. …

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