NYX Nyse Euronext

Trading volume on Nasdaq OMX Group Inc.'s (NDAQ) PHLX options exchange jumped in August, though a rival attributed the gains to a controversial trading strategy.

A quarter of all options on individual stocks and exchange-traded funds in the U.S. were traded on Nasdaq OMX PHLX last month, outpacing the Chicago Board Options Exchange unit of CBOE Holdings Inc. (CBOE) and the International Securities Exchange.

Average daily trading activity in U.S. options slowed 2.4% in August from July levels and 5.5% from August 2009, as market volatility slackened in a traditionally slower month for trading business.

Nasdaq OMX PHLX saw an average 3 million options contracts change hands per day in August, up 20% from July's daily average of 2.5 million contracts.

The PHLX's market share was also seen benefiting from a rise in dividend trades, a low-risk, low-profit strategy that the International Securities Exchange claimed was artificially inflating the PHLX business.

Such trades involve market makers making thousands of transactions designed to pay off as companies tally up a list of shareholders for the purpose of paying dividends. Not all options exchanges facilitate dividend trades, which have been criticized as excluding or taking advantage of inexperienced investors.

In a month of thin trading, the activity can stand out. For instance, on Aug. 3, Pfizer Inc. (PFE) options were a sizeable chunk of the day's volume in the entire options market when 3.4 million calls changed hands with the stock about to go ex-dividend.

Big August dividend trading also occurred in Intel Corp. (INTC), Exxon Mobil Corp. (XOM) and Eli Lilly & Co. (LLY). The ISE estimated that August was the third-highest month on record for volume attributed to the strategy, as a percentage of the overall market.

ISE, a unit of Frankfurt-based Deutsche Boerse AG (DB1.XE) that has targeted the practice, estimated Wednesday that carving out dividend trades from the PHLX's business would put its share of the U.S. equity options market at about 19.3% for August--behind both the CBOE and the ISE.

Nasdaq OMX officials have previously disputed the ISE complaints, citing a new pricing schedule introduced this year as a factor driving more business to the PHLX platform. A Nasdaq spokesman declined to comment on the latest figures.

CBOE remained the largest U.S. options trading venue in August by total volume, factoring in stock index-based contracts that are traded exclusively at the CBOE, earning it 27.2% of the overall market last month.

Exchanges run by NYSE Euronext (NYX) garnered a combined 25.2% of the market in equity options, with gains at its Amex platform partially offsetting a slight slowdown on the company's Arca market.

The smallest options markets also ceded some business from the previous month, with the nascent BATS Options exchange's market share falling below 1% and the Boston Options Exchange capturing 2.9%.

Nasdaq OMX's junior Nasdaq Options Market platform, with about 5% of the market in August, saw trading levels dip from July levels when the exchange introduced a more competitive price slate.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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