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October 1, 2010

Flashing at CBOE

By Peter Chapman

Is the Securities and Exchange Commission going to ban flash orders in options?

Not if the Chicago Board Options Exchange gets its way. The exchange operator has lobbied tirelessly for the past two years to stop the regulator from killing off a practice that allows the CBOE to hold on to orders it would otherwise have to route away. This summer it wrote a long letter to the SEC, which included data illustrating the benefits of flashing for its customers. Some in the industry believe the evidence will convince the SEC to put off a decision about flash orders in options indefinitely.

The CBOE used data to show that: its market makers aren't simply lazy "quote-matchers"; its customers save millions of dollars; execution quality is high; and a fee cap would not eliminate the need for step-ups, or flash orders. 

 

See Chart: Flashing at CBOE

 

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