The Chicago Mercantile Exchange said Monday that it has purchased Liquidity Direct, a software and technology firm, in an effort to boost the electronic trading of options at the exchange.
The addition of Liquidity Direct will “greatly enhance wholesale trade of Eurodollar options contracts on an innovative electronic platform that offers market users flexible, transparent and competitive executions,” said Merc Chief Executive Craig Donohue.
The exchange will launch the Liquidity Direct platform in the second half of the year. It will begin initially in Eurodollar options, but will be expanded to other options products.
The Merc purchased the privately held, Chicago-based company for an undisclosed amount. Donohue said the deal would not have a “material” impact on the Merc’s earnings.
All of Liquidity Direct’s “technology and intellectual property,” including pending patents, was purchased by the Merc.
The announcement came on the same day the Merc announced a single-day trading record. On Friday, the exchange topped 4.54 million contracts, led by 2.9 million Eurodollar contracts.
Liquidity Direct’s software is able to handle complex options trades, Donohue said. Unlike a futures contract, an option is the right, but not the obligation, to buy or sell a contract at a specified price on or before an agreed-upon date.
Strategies for the trading of options can be very complex, and most such trades are made face-to-face in the exchange pits because software has generally been unable to handle the intricate trades.
Last year, less than one percent of options volume was traded on the Merc’s electronic platform.
Neal Brady, Liquidity Direct’s president, will join the Merc as a consultant, while the other seven employees of the firm will move to jobs at the exchange.
Brady co-founded the company in 2000. In recent years it has worked on projects with a number of partners, including the Chicago Board of Trade.
