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January 30, 2008

Turf Battle

By Michael Scotti

There's nothing like a good old-fashioned donnybrook to get the blood circulating on a cold January morning in the Northeast. Conflict makes great copy. This month, Traders Magazine brings the latest on the dark-liquidity debate between the options and equities exchanges.

Nasdaq, once known as the stock market for the next hundred years, wants its piece of the options market. This newcomer is proposing the introduction of dark orders that offer automated price improvement beyond minimum pricing increments-meaning that Nasdaq would allow investors to trade in pennies for an option series that trades in nickel increments only.

Quote-driven options exchanges-and market makers, for that matter-are livid. It's bad enough that the equities exchanges are encroaching on their turf. What's worse, the equities exchanges are looking to create new rules in their market. The equity people have already introduced marker-taker pricing to options. Now dark orders? This should get real interesting. You can read about this latest brouhaha in staffer Nina Mehta's feature story this month.

I asked an upstairs options trader his thoughts on how this battle between the options and equities markets will pan out. He said the equities people have a lot of money behind them. But the options people are smarter. The more telling point he made, though, was about how intense this rivalry could get. The options traders are a tough lot and will dig in their heels for a good long fight, he said. They won't give up easily, he said, adding, "They'd just as soon lose a dollar to see you lose a dime." That's a formidable opponent in anyone's book.

The so-called convergence of the equities and options is also discussed in Jamie Selway's guest Viewpoint this month-his third annual outlook here. Selway says there really isn't a difference between the two markets in his piece-a bold predictions article for the 2008 exchange world.

Lastly, Traders Magazine's Web site,, was relaunched last month. The new site is more user-friendly and visually attractive than its predecessor. Give it a look and tell me what you think. It's also got a powerful search engine.

Traders Magazine will continue to post each issue online. That won't change. Readers will also be able sign up for regularly scheduled electronic newsletters. So if you're not getting e-correspondence from us now and you'd like to, then go to our Web site and sign up. You will not be disappointed.

Michael Scotti

Editorial Director

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