Tastytrade, PEAK6 Invest $10 Million in New Exchange

January 03, 2019 07:30 AM

Three Chicago trading industry entrepreneurs are betting on a new futures exchange upstart aimed at retail traders.

Tastytrade and Peak6 are investing $10 million in a new Chicago enterprise called the Small Exchange, which aspires to be a futures and foreign exchange trading platform for retail traders.

Tastytrade co-founder Tom Sosnoff, a trader turned entrepreneur, is teaming with Peak6 co-founders Matt Hulsizer and Jenny Just to launch the Small Exchange, placing Donnie Roberts in its top post as president and CEO.

In a Tastytrade video posting, Sosnoff called the venture a “new futures exchange” with standardized contracts and central clearing that he expects to launch in the fourth quarter, if it wins regulatory approvals. He didn't specify what types of contracts would be traded.

He has been working on the Small Exchange for a couple of years. It will sell subscriptions for $100, which will turn into "seats" on the exchange if it receives regulatory approvals, he said. It will be separate from Tastytrade.

“You don’t buy this as an investment, you buy it as something you can use,” Sosnoff said in the video. “We expect this for people that are traders.” Still, he said, there will be a limited number of subscriptions in this round, and he expects they’ll increase in value later.

The platform will start with futures and add options later, said Sosnoff, a former trader who made his fortune in the options industry.

He is a co-CEO of Tastytrade with Kristi Ross, and he is its largest shareholder. Sosnoff reaped big gains after he founded Chicago online options company Thinkorswim Group and sold it in 2009 to Omaha-based TD Ameritrade for $606 million.

His follow-up Chicago firm, Tastytrade, launched in 2011 as an online media company targeting its trading talk show at everyday investors, and added its Tastyworks brokerage arm last year after breaking away from early investor and partner TD Ameritrade. The media and brokerage business last year landed a $20 million investment from Menlo Park, Calif.-based TCV, which previously invested $25 million.

The largest investor behind Small Exchange's $10 million funding is Tastytrade, said Roberts, who was an early employee of Thinkorswim and went on to become president and chief operating officer of TD Ameritrade Futures and Forex. Currently, the Chicago startup has five employees, he said. He is not an investor but expects to be in the next round of funding, he said.

Roberts said he's in talks with TD Ameritrade, R.J. O'Brien & Associates, Charles Schwab and other brokers about connecting their retail customers to the exchange once it has received approvals for operation.

In 2017, Sosnoff also invested in the futures business by making an investment in Seed Futures.

Similarly, Hulsizer and Just, who are veterans of the Chicago trading industry, have been making investments in startups for years, some related to the trading industry and others outside it.