The new CBOE Stock Exchange expects to grab 6 to 7 percent of the overall equities business–if not more–over the next three or four years, says CBSX president David Harris.
A large chunk of that is likely to come from the options layoff business, which currently goes to the New York Stock Exchange, NYSE Arca and Nasdaq.
The CBSX’s hybrid market includes a fully electronic platform with price-time priority and a floor in Chicago to cater to options traders. The exchange’s physical floor, staffed by DPM organizations, is at Post 10 of the CBOE’s fourth-floor trading room, just yards from the exchange’s equity options traders.
“We want our options guys to trade with our stock guys,” says CBOE chairman and chief executive Bill Brodsky.
CBOE options traders hedging large positions or putting on complex strategies can walk over to the DPM in a particular stock and get a firm price. To facilitate the huge options layoff business, the CBSX will also have a number of new order types, including the “sweep and cross,” which enables market participants to enter both sides of a cross and sweep better prices at away markets.
Given the cutthroat equities market, a lot is also riding on the exchange’s ECN-like maker/taker fees. “Our model, which rebates at a high level, allows firms with a lot of flow to have us in a better position on their routing table,” Harris says. Many quantitative equity shops take rebates into account when deciding how and where to place their orders. Those firms sending the CBSX a lot of volume will also pay lower take fees.
According to Harris, the exchange can offer a higher rebate than some exchanges and ECNs because the CBSX is a low-cost facility with just two fulltime employees.