UPDATE: SEC Clears NYSE To Expand Penny Pricing In Options
24 Settembre 2009 - 7:25PM
Dow Jones News
U.S. regulators have approved an NYSE Euronext (NYX) proposal to
expand the number of options priced in pennies on the company's two
options exchanges, part of a pilot program now set to run through
the end of next year.
The approval, granted late Wednesday, makes it likely that other
options exchanges will follow suit, though not all agree on the
issue of penny pricing.
The Securities and Exchange Commission initiated the so-called
penny pilot program in 2007, with the aim of tightening price
spreads in options contracts by pricing some names in one-cent
increments.
It's worked, but some of the biggest options exchanges argue
that tighter spreads have come at the expense of liquidity in some
penny-priced names, and made it tougher to execute large
orders.
Under current terms, the pilot program requires options costing
less than $3 to be priced in penny increments, while options
costing more trade in nickels and dimes.
With Wednesday's SEC nod, NYSE Euronext's penny program has been
extended through Dec. 31, 2010 and will expand to include 300 new
issues, eventually covering 85% of overall U.S. options volume,
according to NYSE Euronext officials.
The penny pilot, which had been set to expire Oct. 31 and now
covers 63 names, will add 75 new issues each quarter beginning next
month.
The SEC's approval for NYSE Euronext's penny pricing proposal
essentially compels other options exchanges to follow suit to
remain competitive and maintain order routing linkages between
markets.
NYSE Euronext, which operates two options exchanges, has long
pushed for more options to be priced in pennies, a shift that some
see benefiting exchanges with maker-taker market models like NYSE
Arca Options, which are set up to incentivize high-frequency
traders.
"Expanding the penny pilot program, in my opinion, provides a
cleaner and more transparent marketplace with reduced spreads,
which basically gives retail investors a level playing field," said
Paul Finnegan, senior director of NYSE Arca Options, in an
interview.
Options markets operating on traditional, pro-rata models,
including the Chicago Board Options Exchange and the International
Securities Exchange, are among the chief critics of penny
pricing.
However, rival options markets signaled that they will move to
expand their own penny pricing following Wednesday's SEC
decision.
"We will remain competitive, and to do so will adopt rules that
parallel what the commission ultimately approves," an ISE
spokeswoman said.
A spokesperson for CBOE said that the exchange supports "a more
balanced and flexible approach that considers the benefits of
pennies for customers as well as the the impact for institutional
investors and for market liquidity overall."
"That said, CBOE will evaluate the plan approved yesterday and
take the steps necessary to remain competitive."
The CBOE's and ISE's market model remains dominant in the U.S.,
with the two exchanges combined accounting for about 60% of all
on-exchange options business.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com