Live from Chicago: NADEX CEO Tim McDermott on America’s bright binary options future
“We want market making partners and technology partners who are very familiar with regulated markets and the standard to which regulated markets are held, and who can provide that to our users” – Tim McDermott, CEO , NADEX Here in Chicago, home to America’s longest established futures and commodities exchanges which trace their roots back to the […]
“We want market making partners and technology partners who are very familiar with regulated markets and the standard to which regulated markets are held, and who can provide that to our users” – Tim McDermott, CEO , NADEX
Here in Chicago, home to America’s longest established futures and commodities exchanges which trace their roots back to the colonial period when raw materials were traded and shipped to the old continent to take their instrumental part in the industrial revolution, and which now stand proud as technological innovators for the institutional trading world, assets which are traded on electronic derivatives venues are the de facto method of operation.
Indeed, not only do futures exchanges dominate Chicago’s downtown financial center, but so do the two North American binary options exchanges, which are regulated by the CFTC, and provide the only legal method by which to trade binary options in the United States.
At the FinTech Exchange 2016 conference hosted by Barchart, FinanceFeeds CEO Andrew Saks-McLeod met with Tim McDermott, CEO of NADEX, which is an acronym for North American Derivatives Exchange, which is IG Group’s dedicated binary options trading venue.
Mr. McDermott was promoted to CEO in May 2014 from his previous position at NADEX as General Counsel and Chief Regulatory Officer, following the departure of former CEO Yossi Beinart, who was appointed CEO of Tel Aviv Stock Exchange in January 2014.
Educated at Loyola University of Chicago, with his alma mater being a Doctorate in Law (JD), Mr. McDermott has a very strong institutional derivatives career in his armory, having spent four years between 2003 and 2007 as Director and Compliance Counsel at CME Group before joining NADEX in January 2008.
With regard to NADEX’s presence in the United States, and the future of binary options trading, Mr. McDermott began by explaining “There are lots of different OTC trading opportunities for retail traders elsewhere in the world, however in the US, only OTC FX remains as every other asset class is traded via exchanges.”
Exchanges are the absolute norm in America
“Although FX has remained as an over the counter business, it has been subject to tighter restrictions” he said. “US customers are used to trading on regulated exchanges . They trade equities, stocks and futures on exchange. It is a different mentality of trader that makes up the market place here in America compared to other regions, and therefore companies must be able to offer that kind of clientele an exchange traded product that the customers feel comfortable with, this being a component within a regulated, normalized exchange based market.”
Who makes markets on NADEX, and who is it aimed at?
Binary options traders in regions where OTC trading is the norm are quite a different demographic to those in North America, therefore have different trading requirements and a different approach to the market.
In order to expand on this, Mr. McDermott explained which type of traders and brokerages NADEX looks toward. “We have market makers on the exchange which include companies such as Market Risk Management, which is a US based entity but is part of the IG Group.”
“Group One Trading LP is one of the largest options market makers in the US, with a presence on the CBOE, NYSE AMEX, NYSE ARCA, NASDAQ PHLX, and CME in addition to Nadex. As long as we can find people like that which have a top flight ability to make good markets to support the exchange, that is good for our customers” he said.
“We want market makers which are registered on our exchange to make our members’ experience the best it can possibly be. If they are successful as well, then thats how it should work. Our end game is that we should have quality markets, which have attributes such as tight, deep markets, and lots of assets.
What is America’s differentiating factor?
Mr. McDermott explained that “Operating the OTC shop’s sales model in many regions has become a very high cost business model, because it is manpower intensive, as it is dependent on the sales people on the phone.”
“The US has a different type of customer to a degree but what I think is actually interesting about the US, is that the potential customers do not quite know yet if they are going to become customers, because the market is so nascent” he said.
“Ultimately, the activities that have occured in other regions that have created a bad name have been limited in America, and the regulators have made sure that those who do not act in accordance with correct practice will not be allowed to operate at all and the ethos with regard to operations of a retail binary options company is very much subject to the same strict guidelines as the retail FX industry here in the US” he said.
Land of opportunity
Mr. McDermott looked at how the US market is structured, and the resulting opportunities for long term business. “Look at where we all are in the US right now” he said.
“In addition to NADEX, NYSE is now listing binary options, and another CFTC regulated exchanges is listing binary options. The opportunity for the unregulated or illegal operations is just not there, and those who attempt to gain a foothold here are getting squeezed by a lot of legitimate alternatives” – Tim McDermott, CEO, NADEX
“In America, customers do not need to look toward the OTC offerings that are too good to be true” he concluded.