LaBranche & Co., after a bruising year, has retreated from making markets in options.
The trading house, best known for its role as a New York Stock Exchange specialist, recently gave up its rights to act as a market maker at the Chicago Board Options Exchange. The move follows similar decisions at NYSE Amex Options and Nasdaq OMX PHLX, where it relinquished its memberships. It remains a proprietary trader at CBOE.
The trading house doesn’t plan to stop making markets in equity options completely, but says it will return as an electronic market maker. At the end of last year’s third quarter, LaBranche still had about $250 million in capital.
“We don’t plan on exiting [the business] altogether,” chief executive Michael LaBranche told analysts last year. “We are making a move to making markets on a more electronic basis. Those are much smaller trades and they are much smaller positions. We are going to approach the business differently.”
LaBranche, which operates an institutional brokerage and a market-making unit, lost $13 million on the market making side last year. It blamed internal problems and narrow spreads for the problems in stock options. Last year was the second year in a row during which the firm lost money in options trading.
Tighter spreads, a result of the move to trading in penny increments in 2007, have wreaked havoc with small market makers. Their numbers continue to decline as the business moves into the hands of larger more electronic firms. At CBOE, for instance, about 50 market makers have dropped out of the business in the past two years. That leaves about 100 of CBOE’s 200 members as registered market makers.
LaBranche, an NYSE specialist for over 100 years, sold its NYSE operation to Barclays Capital a year ago.
