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January 3, 2011

Philly Seeks Specialists

By Peter Chapman

Nasdaq OMX PHLX is launching a remote specialist program. Members designated as remote streaming quote traders (RSQTs) will be permitted to trade certain options as specialists without maintaining a floor presence. That will entitle them to greater benefits for some trades, but also entail stricter quoting requirements.

Tom Wittman

The new program recalls e-specialist programs operated by other floor-based exchanges, such as the Chicago Board Options Exchange and NYSE Amex Options, but will be narrowly focused. Only those options dropped by any of the Philly's five floor-based specialists will be available to a remote specialist. Those are typically options on stocks that are in play due to a rumored or actual takeover deal.

A Philly specialist will sometimes drop an option because it doesn't want to assume the risk of trading a volatile deal book. That hurts institutional brokers who may want to bring a large order to the floor in the name. Heretofore, if a specialist dropped the option, the Philly had to delist it.

"Deal stocks can be tough to make a market for," explained Tom Wittman, the executive in charge of Nasdaq's two options exchanges. "The book may not fit the sweet spot for these five firms."

Specialists at the PHLX are Citi, Citadel, Susquehanna, Group One and Timber Hill. An RSQT, however, may have an interest in the name. Typically, RSQTs are midsize and large firms trading on a principal basis. Goldman Sachs, Barclays Capital, UBS and Wolverine are RSQTs.

While the new program is narrowly focused, it could be expanded. Wittman noted he would not undertake a remote specialist program in the same manner as the other exchanges have done, but that the new program "will allow us to do other things down the road if we want to."

 

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