The last stand against the march of computerised trading

Chicago board options exchange tradersGetty ImagesTraders monitor prices in the Standard & Poor’s 500 stock index options pit near the open of trade at the Chicago Board Options Exchange (CBOE) on September 17, 2015 in Chicago, Illinois.

Electronic trading dominates market volume these days.

It is thought that more than 50% of all stock trading volume and more than 80% of CME Group volume comes from trades completed on the screen.

But, Craig Donohue, executive chairman at The Options Clearing Corporation, and CEO of the Chicago Mercantile Exchange when electronic trading became all the rage, says there are some markets where electronic trading probably won’t work.

In an interview with Business Insider, Donohue said, “That’s becoming less and less the case, but I mean, certainly it seems to me that markets that are very illiquid or markets where either the products or the trading dynamics are very, very complex, they don’t lend themselves particularly well to electronic trading.”

Specifically, Donohue points to the options market, which has more complex pricing theories. Traders in those markets use strategies like butterflies, condors, strangles, and straddles, which require several “legs” to be put on at one time.

“I’ve been away from it for a few years, but at least during my time I think we certainly saw that electronic trading in our more complicated options markets were I think significantly more difficult to achieve than in the futures markets, where you just had fewer instruments, concentrated liquidity in, but, you know, like in the listed US equity markets, for example, it’s a somewhat different picture, because you have so many different options theories, and it’s a more complicated market.”

As for if we will ever see the return of the floor trader, Donohue wouldn’t rule it out completely, but said, “I don’t think it’s ever going to be the force that it was. I just think technology has taken us beyond that.”

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