Exclusive interview: CQG executives talk EMS/OMS with Broadridge, equity options, algos, security

FinanceFeeds Editorial Team

In the follow-up to FIA Boca 2023, the renowned derivatives industry conference that took place on 14-16 March at The Boca Raton, Florida, FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with CQG’s Ryan Moroney and Kevin Darby to learn more about the fintech firm’s recent developments.

Ryan Moroney, CEO, and Kevin Darby, Vice President of Execution Technologies, spoke about the CQG-Broadridge partnership for a single out-of-the-box EMS/OMS solution, the rise of options trading, CQG’s big bet on algo trading, how to use AI, and prioritizing security and systems reliability in today’s macro environment.

It could be said that Ryan Moroney is an in-house product, with nearly 12 years at CQG in his early career, beginning as a Data Quality Intern and later assuming operations and product manager roles. He then spent three years at S&P Global Market Intelligence before returning to CQG in December 2017 as President and most recently CEO.

Kevin Darby spent 12 years at Chicago-based Blue Capital Group as a Quant, and nine years as Managing Partner of Blue Trading Systems until May 2020, when he licensed its software to CQG and joined the latter as VP of Execution Technology, with a focus on algo execution.

CQG and Broadridge offer single OMS/EMS solution

Starting with the Broadridge OMS-EMS partnership, Ryan Moroney explained how it all came about, approximately 18 months ago, with one mutual customer trying to bring the two together.

“We have a number of mutual clients using both the Broadridge OMS solution and CQG’s EMS solution”, but clients had to go buy one solution and then the other and then find a way to stitch the two solutions together. The two firms then brainstormed: ‘Is there a way for us to do a cleaner integration between our tools so that, from a customer perspective, they don’t have to do all that integration work?’

From there, they began exploring what each solution does, their overlaps, and synergies. The final product is the “culmination of the 18 months working together trying to figure out a good way to provide a combined OMS and EMS solution to the marketplace so when [customers] buy it they feel the whole thing is well integrated and well thought out”. It’s one solution instead of two separate products that clients need to piece together, Moroney added, as he pointed out that a number of mutual customers will benefit directly from it, but CQG and Broadridge are also onboarding new clients collectively.

CQG actively pursuing the equity options business

The overall macro environment is bringing more and more market participants to options trading. CQG already has a full suite of futures, options, fixed income and equities execution and analysis tools, connected to the most popular derivatives and equities exchanges, and a large customer base relying on CQG to access those products, but the firm is taking one step further: single name and index options.

“We are actively pursuing the equity [and index] options business, a brand new asset class for us.” Darby acknowledged the effort is quite a technical and analytical challenge, while noting that CQG’s team is more than capable of providing value to its customers in the space. Options become really important in uncertain and volatile environments because of their innate ability to efficiently transfer risk, he concluded.

Moroney agreed and added that institutional participants are natural options players and “we offer the right tools they need”, but today’s technology makes sophisticated workflows accessible to the point of making options an attractive product for the retail segment. Options remain a complex product, but more retail traders are sophisticated and knowledgeable enough to use them properly, he said. “If we find a good way to present that to them, options are a good way to interact with the market.”

CQG Algos save money 70% of the time

CQG’s play in the algo space since acquiring software from Blue Trading Systems (BTS) is now bearing fruit. The suite of execution technologies includes pre-assembled trading algos and a software development kit. The algos run server side, accessible through a CQG GUI or API. The firm has seen growth of two to three times each month, and it’s starting to see inbound demand. Word of mouth is the biggest driver of growth in the algo division as traders do talk to each other.

This is Kevin Darby’s department, the Quant leader who joined CQG in 2020. He told FinanceFeeds’ Nikolai Isayev that the algo platform has been live for more than a year now, mostly covering the US markets (CME GLOBEX), but CQG has already expanded to other US exchanges and plans to expand the algo product to European and APAC exchanges.

The core algo functionality was developed by Darby and his team over the last three years and the results have been very positive, with “very happy customers.” There are objective reasons for that: the team did a simulation to calculate how much money customers could save by using CQG Algos (namely Arrival Price) during the year of 2022.

Darby and his team found that 80% of the time, the algo execution platform did better than a market order with larger order sizes, and “70% of the time we got orders done within the bid-offer spread”. In today’s market, trying to execute large orders is not easy without incurring slippage. CQG Algos have been successful in onboarding clients that need to execute large orders with minimal slippage.

Ryan Moroney reminded that in the technology vendor space, all the tools are generally made to help people make better decisions and avoid getting hurt on the risk side, but CQG Algos are the firm’s first offering that has a very direct correlation to the amount of money clients save.

“Transaction cost savings for the customer is real tangible money that goes straight to their bottomline. We believe our tools help customers make more money or not lose money. This is the first time that direct correlation says ‘if you use this, on average, these are the savings you’re going to see’”.

“Volatility is good to a point”

We’re living through a balancing act, said Moroney about the heightened volatility in the markets. “Volatility for our business is good to a point”, he stated, pointing to more trading opportunities and volumes, with people running to the derivatives markets, which are designed for risk transfer. There is, however, a threshold. When above it, “you end up with contagion spread that is bad for everybody”, he added, while emphasizing that business is “quite good”, especially in the last two months. “We’re happy with it so long as it stays within a reasonable range.”

“An interesting thing to me about high volatility is that all of the mathematical relationships that underlie derivatives, whether options or futures, still obtain”, CQG’s algo specialist Kevin Darby commented, adding that “market volume and the fervor itself kind of knocks things around”, which ultimately benefits prop traders, who “are very happy with this sort of environment as well.”

Critically important is that trading systems across the globe are capable of handling such conditions, and Ryan Moroney praised the whole industry for exactly that. “Exchanges, back office systems, brokerage workflows, tech workflows…everything seems to be working and not breaking under stress, which is a really good testament to what we all built.”

Yes to AI but not unleashing something unintended

When questioned about the integration of AI products, both CQG executives are cautious, especially in the name of data privacy, although the “magic behind” ChatGPT and lesser known language models, such as Meta’s LLaMA AI, is “super cool”. The process, however, is very expensive and time consuming, according to Kevin Darby, who says CQG is exploring various ways that AI can help its clients at a measured pace – with an eye toward privacy, including how to apply AI to optimize algo execution, on algos like Arrival Price or VWAP. For CQG, he said, this approach is a lot less scary than unleashing some horrible chimera black box algo on our clients. “We’re definitely not doing that. We’re actively working on training algos with AI, in a careful and measured way.”

As to the themes of 2023 and beyond, Ryan Moroney pointed to the rise of options trading, the sophistication of the retail segment, and the role CQG plays in algo execution, a division that is achieving high growth.

On top of that, CQG will be focused on certainty: “making sure everything is stable and reliable”, said Moroney, reminding that CQG has been in business since 1981. “We wouldn’t survive this long if we didn’t think primarily of the customer and ensure service works for them. It’s time to cycle back and make sure it’s designed for black swan events”.

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