On May 19, the Small Exchange announced the launch of a new futures exchange after receiving approval from the U.S. Commodity Futures Trading Commission (CFTC) and successfully completing Options Clearing Corporation (OCC) tests. The launch marks a new beginning for the industry, as more market participants will now have access to products to manage risk, that are standardized, and easy to consume financial instruments.
As part of the development, Small Exchange President and CEO Donald Roberts spoke with Benzinga regarding the future of consumable derivatives trading.
‘Markets Missed The Boat’
The Small Exchange is a product of deep passion and understanding of the financial markets.
The firm was founded after Roberts, alongside Tom Sosnoff, Founder and co-CEO of tastytrade, reflected on their experiences building thinkorswim, a brokerage acquired by TD Ameritrade Holding Corporation (NASDAQ: AMTD) in 2009 for $606 million.
The two were contemplating whether it was possible to make futures products more consumable for the retail investor.
“The futures markets missed the boat on the retail world and general public,” Roberts told Benzinga. “We needed to standardize the contracts.”
After reflecting on the idea, Roberts researched the process and decided he had the capability to bring the vision to fruition.
Roberts quickly acquired seed funding from PEAK6 Investments, L.P., tastytrade, Citadel, and Jump Capital, as well as hired a team of leading experts on derivatives markets and fintech.
The firm’s research and development resulted in investment vehicles that offer direct exposure to small, standard, and simple futures contracts.
“We standardized the tick sizes, the expiration cycles, and [reduced] the notional size,” said the CEO. “We feel very confident that the products themselves would allow participants to hedge their existing portfolio -- transfer risk -- and we also feel they move enough to give people the opportunity for short-term trading, or asset speculation.”
With the recent exchange launch, market participants can now access the following products:
- Small US Dollar (SFX): An FX product priced directly to the USD.
- Small Stocks 75 (SM75): A diversified index that provides exposure to 5 stock sectors.
- Small Precious Metals (SPRE): A blended vehicle of popular metals.
“If you look at the equities market, 100 shares of some tech stock can cost you $10,000 in a cash account or $5,000 in a REG T account, and then you’re charged margin, interest, etcetera,” said the CEO. “You would be able to get the same bang for your buck -- the same exposure -- with our equity index for say $1,000.”
Innovation, Sustainability, And Inertia
“We’re going to expand our product offering.”
“We can create sector indices on pharmaceuticals, industry, and the cannabis markets for example,” Roberts said. “These products will enable spread and pairs trading, enhancing the capability to either hedge risk, asset speculate, or invest long term.”
Once products develop a deep liquidity profile, the Small Exchange will expand trading hours and introduce options, giving investors the ability to manage risk and allocate exposure to the marketplace through complex strategies.
Additionally, the Small Exchange is working feverishly to develop a support mechanism that makes participants feel like they belong with the firm.
“We’re a small firm playing in a land of giants. We’ve got to do 20 to 25 times better than the ways others facilitate business.”
The trader support system will include educational offerings, seminars, and reach group partnerships with leading information and analytics sources like Benzinga and Trade Ideas.
“We feel that once we hit a certain amount of liquidity, then inertia will take over and participants will eventually come and find us. Until then, we will keep enhancing our educational offering and customer support.”
To learn more about capital-efficient futures exposure through Small Exchange products, visit www.smallexchange.com.