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December 1, 2001

Options Operations Squeezes Some More

By Peter Chapman

In another sign of the rapid consolida tion under way in the options industry, Goldman Sachs is combining the U.S. options trading departments of its Hull Trading and Spear, Leeds & Kellogg units.

The new group, SLK-Hull Derivatives, will be run out of Chicago. No layoffs are imminent.

The co-heads are Art Margulis, from Hull, and Stuart Sternberg, from Spear, Leeds. The deal does not change Hull's significant foreign options trading operations.

Spear, Leeds is one of the country's four largest options trading firms, along with Susquehanna Financial Group, Knight Trading Group, and Letco.

Hull is one of the top three equity index options specialists, but a small player overall. Most of its options trading revenues comes from outside the U.S.

Goldman would not disclose its volume. But in 1998, according to an SEC filing, Hull traded 5.5 billion, or seven percent, of the total 8 billion equity index option contracts and 2.9 billion, or less than one percent, of the total 326 billion individual equity option contracts.

The options industry is in the midst of a massive restructuring that began in 1999. That's when the Securities and Exchange Commission forced the exchanges to accept multiple listings. For the first time, a specialist on the Chicago Board of Exchange, for example, could trade options on the same stocks or indices as a dealer on the American Stock Exchange.

To win business in the newly cutthroat environment, dealers began paying brokerages for order flow. Many hard-pressed small and mid-tier dealers have had to sell out to larger organizations.