NYSE Arcas plan to end the six-year old penny pilot and reduce the number of classes to 150 is being met with cheers in some quarters and jeers in others.
In September, the industrys fifth largest options exchange, petitioned the Securities and Exchange Commission to end the pilot, which began in 2007 and cut the minimum trading increment to a penny from five cents and a nickel from 10 cents.
A key part of the proposal is to reduce the number of applicable classes from 363 to 150.
Arca told the SEC that most of the benefit of trading options in pennies has accrued to the 150 largest options only. It found no discernable benefit for the rest. In fact, the pilot has proved costly because of the necessary investment in technology to process an increase in messages.
A reduction in the number of classes will reduce the message traffic, Arca told the SEC.
With the public comment period covering Arcas proposal coming to a close, there is no shortage of opinions. Competitors are split. Chicago Board Options Exchange is in favor, it told the SEC in a letter. International Securities Exchange is opposed because it believes any return to nickel and dime trading would hurt investors.
Brokers are also split. Institutional brokerage Dynamex is in favor. It told the SEC in a letter that trading in penny increments reduces liquidity which hurts investors trying to move size.
Market makers Susquehanna International Group opposes the proposal for the same reason as ISE-spreads will widen on those names cut, hurting investors, it told the SEC.
If approved, the Arca proposal would likely become the standard for all exchanges, Susquehanna noted.
