UPDATE: CBOE Seeks To Offer 'Qualified Contingent Cross' Orders
03 Maggio 2011 - 11:58PM
Dow Jones News
The Chicago Board Options Exchange intends to offer its own
version of a new options-trading service that has drawn loud
protests from others in the stock-options industry, including the
CBOE itself.
The CBOE has submitted to market regulators exchange rules that
would let options traders carry out transactions that bypass
competition from rival traders, a concept that CBOE executives
sharply criticized when a rival exchange first outlined the idea
nearly two years ago.
The CBOE, owned by parent CBOE Holdings Inc. (CBOE), now looks
to introduce such "qualified contingent cross" orders after
regulators in late February approved the long-debated function
developed by the International Securities Exchange.
"CBOE has opposed the ISE proposal, but believes we now need to
adopt rules to introduce a similar order type for competitive
reasons, as indicated in our qualified contingent order briefs and
comment letters responding to the ISE proposal," exchange officials
wrote in a filing submitted to the Securities and Exchange
Commission late last week.
The orders allow two options traders to agree to do a trade at a
specified price, and execute it without exposing it to other market
participants, provided the order is linked to a stock trade and
meets certain other criteria.
The concept has proven divisive in the options industry,
particularly among exchanges that have warned the service could put
options-trading on a path to resemble the stock market, where
nearly one-third of all trades now are carried out privately.
CBOE Chief Executive William Brodsky, speaking at an industry
event in March, said the development was a "terrible mistake" that
sends the options business onto a "slippery slope."
Market analysis firm Trade Alert LLC estimated that nearly
100,000 options contracts per day are now being executed via the
ISE's qualified contingent cross orders. On March 31, one such
order traded 33,000 options on the iShares FTSE China 25 index
fund, linked to a one-million share transaction, according to the
firm's research.
One big concern of critics like the CBOE is that market-makers
that provide liquidity to the options industry could come under
pressure if more trading gets done on a party-to-party basis. ISE
executives have argued that the service will put all-electronic
exchanges on more even standing with physical trading floors, where
traders can negotiate similar private trades that are only briefly
offered up to competitors.
Nasdaq OMX Group Inc. (NDAQ) and NYSE Euronext (NYX), which run
two options exchanges each, have also sought regulatory approval to
roll out their own versions of the qualified contingent cross
orders. Like the CBOE, both previously raised concerns around the
function.
BATS Global Markets, which introduced an options market in early
2010, is also interested in developing a version.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com
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