The Magazine for Securities Industry Professionals

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Options

Redoing Ties that Bind

Peter Chapman
Trading large lots could get easier under a plan being put together by the industry's options exchanges. The International Securities Exchange and NYSE Arca, hoping to speed up trading in a marketplace that has become much more fragmented under the "penny pilot," are spearheading a redesign of the industry's Options Linkage Plan. The proposal is intended to make sweeping multiple exchanges faster for large-lot traders by incorporating elements of the equities market's Regulation NMS. "We have a consensus of all the exchanges to move forward and replace our current linkage with a more Reg NMS-like linkage plan," says Mike Simon, the ISE's general counsel and chief regulatory officer. "I think one year from now, we will have it implemented."

Options Exchanges Mull Depth-of-Book Feeds

Peter Chapman
How low do option traders want to go? Under their plan to modernize intermarket linkage, the options exchanges will draft a new trade-through rule, requiring traders to take out top-of-book quotes when sourcing liquidity. That is unchanged from today, as traders need not sweep beyond top-of-book to be in compliance with existing trade-through rules. Some traders, though--mostly of the algorithmic variety--want the ability to sweep as many levels below an exchange's best bid or offer as they can. Whatever the rule says, they want to scoop up as much liquidity as possible.

Dark Fight in Midst of Options Battle

Nina Mehta
Nasdaq's plan to incorporate hidden orders in its proposed options exchange has enraged many of its competitors, who claim the idea will undermine the progress they have made in growing the business. Those exchange executives contend that by encouraging internalization, dark liquidity has hurt the equities market and shouldn't be allowed across the threshold of the options industry. The latest fracas over dark, or hidden, liquidity emerged in the run-up to Nasdaq's planned December 7 launch of its Nasdaq Options Market, which was scheduled to include

Options Maker-Taker Markets Gain Steam

Nina Mehta
The Boston Options Exchange has become the latest exchange to reject the options industry's traditional transaction pricing model in favor of that pioneered by the cash equities business. Following the lead of NYSE Arca Options, which switched to "maker-taker" pricing last January, BOX will now pay a rebate to suppliers of liquidity and charge liquidity takers a fee.

Institutions Drive Options Volume Skyward

Sarah Rudolph
Institutional trading is the main driver behind the continued surge in options volume, and, as with other asset classes, it is hedge funds doing most of the trading. Looking at options trading over the last 10 years, one notices the dramatic shift in the industry's customer base, says a recent report from Aite Group, a Boston-based financial services and technology consultancy. In 1997, 80 percent of total options volume came from retail investors. Today, Aite Group reports, slightly more than half-54 percent-of trading comes from institutions.