Nasdaq OMX To Test-Drive New Options Pricing At PLHX
15 Dicembre 2009 - 10:44PM
Dow Jones News
Nasdaq OMX Group Inc. (NDAQ) plans to pay market makers on its
PHLX options platform for the first time in an effort to improve
pricing for some of the most actively traded contracts, according
to a senior executive.
The move marks a fundamental change for Nasdaq OMX PHLX,
formerly known as the Philadelphia Stock Exchange, and comes as
rival NYSE Euronext (NYX) has taken a bigger piece of the U.S.
options market in recent months.
Beginning in January, Nasdaq OMX PHLX plans to roll out a new
pricing model in so-called SPY options tied to the S&P 500 SPDR
Trust exchange-traded fund. The move is aimed at encouraging market
makers at the PHLX to post better prices on SPY products, the most
actively traded class of options.
"It's my belief that this broad-based index would trade better
in a make-take environment," said Thomas Wittman, president of
Nasdaq OMX PHLX, in an interview. "We believe market makers are
going to be on the national best bid and offer a lot more than they
have in the past."
In the so-called maker-taker model, market makers are paid to
provide liquidity to the exchange and customers who take liquidity
pay a fee to trade. This is the model used by Nasdaq OMX's smaller
options platform, the Nasdaq Options Market, as well as NYSE
Euronext's Arca exchange.
About 83% of U.S. options trade takes place on exchanges like
the PHLX, the Chicago Board Options Exchange and the International
Securities Exchange, which employ pro-rata pricing models that
charge market makers and pay rebates for customer order flow.
Blending the two models at PHLX is a "unique" approach,
according to Wittman, and it comes amid increased competition in
the U.S. options sector.
In November, NYSE Euronext saw its equity options market share
rise to roughly equal that of the International Securities
Exchange, the second-largest U.S. options market by volume after
CBOE. Competitive pricing played into the gain, as well as a move
by NYSE Euronext to bring in banks and trading firms as equity
partners in its NYSE Amex options exchange.
Under its new pricing structure, Nasdaq OMX PHLX will retain its
pro-rata pricing structure, but now will pay market makers 25 cents
per contract to make markets in SPY products. Customers will be
charged 25 cents per contract to interact with those markets--well
below what they pay at other maker-taker venues, according to
Wittman.
That means the exchange is willing to make no money per contract
in order to bring order flow in SPY products, he said.
Wittman's goal is to boost the PLHX's market share in SPY
products, which in November accounted for nearly 10% of all options
trades.
The CBOE and ISE dominate the SPY market, last month accounting
for 49% of trading volume, while the PHLX claimed 8%, according to
figures from the Options Clearing Corp.
Exchanges with maker-taker pricing models have recently
accounted for about one-third of trading activity in SPY
options.
"We'll try it out and see if we need to tweak it at all,"
Wittman said. "Then we'll determine, with our members and our
users, if there's another [product class] where we should use
this."
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com
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