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March 1, 2013

What Happened?

By Editorial Staff

It was supposed to be a big deal.

In October 2011, when CBOE Holdings listed its SPXpm contract on its all-electronic C2 exchange, both brokers and exchange officials expected the listing to be a giant hit because, for the first time, CBOE offered automated executions in an index option based on the S&P 500. Up to that point, trading in an S&P 500 product was limited to those traders standing in the pits at the Chicago Board Options Exchange, trading the exchange's flagship SPX option. If there was a concern with SPXpm, it was that trading in the flagship contract would suffer.

Events proved otherwise, as volume in SPXpm never amounted to much. So, this month, CBOE is scheduled to move the product into the open-outcry pits at CBOE. The exchange expects the move to goose volume. 

Ed Tilly

The SPXpm, whose value is based on the closing-and not the opening-prices of the underlying stocks, never caught on. CBOE executives believe that a competitor product, a weekly SPX contract that began trading electronically on the CBOE at around the same time, stole its thunder.

Roughly 6,000 SPXpm contracts trade at C2, on average, every day, according to CBOE data. That compares to about 100,000 SPX weekly contracts that trade at CBOE, on average, every day.

Trading in the weekly SPX contract-whose value is also derived from the closing prices of the S&P 500 stocks-is accessible electronically through the CBOE's "hybrid" mechanism, that melds screen-based trading with its floor-based, open-outcry marketplace. The weekly contract "probably satisfied the desire for electronic access" to an SPX contract, Ed Tilly, CBOE president and chief operating officer, told reporters in January.


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