In the battle to wrest trades from the over-the-counter market, the Chicago Board Options Exchange is making strides. During the first 10 months of last year, the CBOE traded about 10 million FLEX contracts. That’s up from 3.5 million contracts for all of 2009 and about 1 million for 2008. A FLEX contract–it stands for "flexible exchange"–is an options contract with non-standard terms that can be tailored to the non-standard needs of institutional investors. It is positioned to compete with so-called "look-alike" contracts, which represent a substantial portion of OTC options trading. CBOE pioneered the FLEX trade in 1993, but the product never caught on because of certain duration and size limitations. The gains of the past year or so are due to several changes CBOE pushed through the Securities and Exchange Commission in 2009: non-traditional expiration dates; elimination of the minimum size requirement; and an extension of maximum terms to 15 years. CBOE is not the only exchange to offer FLEX options–four do–but it has been the most aggressive in championing the product. FLEX volume is still just a drop in CBOE’s bucket: the exchange traded over 700 million options contracts through October.
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