CORRECT (3/17): HTG's Hehmeyer Sees Prop Trading Reshaping Off-Exchange Markets

BOCA RATON, Fla.--(Dow Jones)Electronic trading strategies that have revamped stock and futures markets around the globe will soon come to off-exchange swap markets as new regulations for the $583 trillion sector are finalized, according to a derivatives industry veteran.

The injection of new algorithmic trading strategies into off-exchange derivatives markets, facilitated by a new breed of trading venues, will make the market more efficient and bring down costs for customers, according to Chris Hehmeyer, chief executive of the proprietary trading firm HTG Capital Partners LLC, and previous CEO of the futures brokerage GHCO.

"They're rewriting the rules of the sport and it will allow qualified players in the game," Hehmeyer said on the sidelines of a Futures Industry Association event. "We want to play."

Regulators in the U.S. and Europe are crafting a new architecture for so-called over-the-counter derivatives trading, seeking to address systemic risk embedded in instruments like credit-default swaps. New rules are expected to move many of the products to clearinghouses, which back up trades, with transactions carried out on registered platforms called swap execution facilities.

HTG Capital already is active as a market-maker in some over-the-counter energy markets such as natural gas, where CME Group Inc. (CME) facilitates some customized derivatives trade. Hehmeyer said the Dodd-Frank law opens the door for market-making firms such as HTG to trade in new sectors that have typically been the domain of major dealer banks, without competition from smaller rivals.

Much remains tied to the way the Commodity Futures Trading Commission--charged by the 2010 Dodd-Frank law with overseeing much of the swaps market--defines the role of dealers, trading platforms and products, said Hehmeyer, who also serves on the board of the Futures Industry Association.

But the entry of high-speed electronic trading firms ultimately will drive price spreads lower and reduce transaction costs for users such as insurance companies and hedge funds that use over-the-counter derivatives to hedge market risks, according to Hehmeyer.

-By Jacob Bunge and Jamila Trindle, Dow Jones Newswires; 312-307-4879; jacob.bunge@dowjones.com

CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024