Born in Budapest in 1944, Thomas Peterffy came to the United States in 1965 unable to speak English. By the 1970s, after designing commodities trading software, he bought his own seat on the American Stock Exchange and began trading options. He founded Interactive Brokers and today is worth an estimated $5 billion according to Forbes.
AT: Where did you get the idea for e-options trading from?
Thomas: Open outcry trading never worked for options because of the time priority among market makers for the many series that the specialists or exchange officials could not keep track of. This resulted in constant squabbles which, due to my small stature and poor English, I could never prevail in. I needed a computerised world to win.
AT: Do you think current regulation addresses market making obligations sufficiently?
Thomas: NO, formal market maker obligations were gradually weakened over the years.
AT: Is it beneficial for the market to have a small group of institutions performing market making functions in the options world?
Thomas: Those benefits are diminishing. Ideally, market makers would have firm obligations to make two-sided markets at all times except for technical outages. Unfortunately, this could not be enforced today because of rampant insider trading and front-running of news.
AT: How can firms such as Interactive Brokers speed up the process of transferring options to fully electronic trading from pit traders?
Thomas: There is a very small and weak constituency today in favour of doing that. It is the few genuine market makers against all the investment banks who were able to convince their institutional clients that an opaque market is better for them than a transparent one.
AT: What's the next step in the evolution of HFT in options trading?
Thomas: I have been advocating the slowing down of liquidity removing orders by exchanges for a random number of milliseconds up to 500. This would encourage HFTs to provide liquidity which they claim they are doing anyway.