Ballista's Options Platform Could Change the Game

This is the second in a two-part series on the fast and furious changes in the options pricing landscape. Be sure to read the first part.

Going Ballista

Start-up Ballista has created a unique electronic platform targeting institutions and other professional traders that trade large blocks and employ delta-neutral or other hedges with multiple-strike strategies or combinations of stock and options. CEO Robert Newhouse has lofty aspirations. "We are going to do for the options market what ECNs [electronic communications networks] did for equity markets," he said last week.

Newhouse's background includes a position at Island, a pioneer in ECN, so modeling his new firm after it and firms such as Liquidnet is a natural progression. Targeting institutional trading seems like a compelling business model, as well.

ECNs' ability to drain trading volume away from traditional exchanges was made clear on Tuesday when NYSE Euronext (NYX - commentary - Cramer's Take) reported second-quarter earnings. The numbers showed that NYX matched-volume market share -- trades executed at the same level as the market's opening reference price -- dropped below 50%, compared with 64% from the year-ago period. This is evidence that large-block stock trading continues to move to alternative venues. And as option exchanges such as the International Securities Exchange (ISE - commentary - Cramer's Take) and the Chicago Board of Options Exchange have launched their own stock exchanges, and the Nasdaq is now in the options business, the trend toward executing complex orders on a single platform will continue to gain traction.

I recently had a chance to visit Ballista's offices to speak with Newhouse and his team. I saw a demonstration of how the platform works and discussed the company's business plan -- the interface was nothing short of impressive, and the candor with which they outlined their goals was refreshingly straightforward.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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