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Options Industry Braces for Penny Revolution

Traders Magazine, September 2006

Nina Mehta

It happened in the Nasdaq market. Could it happen with options? Five years ago in the equities market the minimum trading increment was cut from six-and-a-quarter cents to a penny. The biggest impact was felt on the dealer-dominated Nasdaq side as spreads collapsed, dealer profit margins got whacked and the structure of the market transformed almost overnight. What once had been largely a quote-driven dealer market turned into an order-driven agency market. Now a similar drama may be about to play itself out in the options world. Although trading occurs on exchanges, options is primarily a dealer-driven market.

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