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From: TFF	8/29/2007 5:56:11 PM
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Boston Options Exchange Joins NYSE in Paying Rebates By Edgar Ortega Aug. 28 (Bloomberg) -- The Boston Options Exchange will follow larger rival NYSE Euronext in paying a rebate for some orders to compete in the expansion of a program requiring contracts be quoted in penny increments. The fees will apply only to option classes that are part of the so-called penny pilot, which next month will include about 35 percent of daily U.S. trading. Under the plan detailed today in a statement, the Boston exchange matches NYSE Arca's rebates and charges 5 cents less per contract on some trades. Chief Executive Officer Scott Morris reduced fees in January when the six U.S. options exchanges had to start trading some contracts in one-cent increments. The move had ``mixed results'' as the NYSE Arca exchange drew business by introducing rebates, which make it easier for brokerages to post better prices for trades, Morris said in an interview. ``We hope to gain that advantage,'' Morris said today. Now that the penny pilot is expanding we think there is a bigger pot to split between the two of us.'' Competition among exchanges in the $3 trillion options market has increased with the pilot. It has drawn Nasdaq Stock Market Inc. into the business and spurred the four largest markets to cut some trading fees. Only the NYSE Arca had paid rebates, a move that helped the exchange draw four new market makers and gain more than 1 percentage point in market share from rivals. Market Share The Boston exchange, the smallest of the six options markets, will pay a rebate for market makers of 30 cents a contract for trades executed against incoming orders. Brokerages that are not designated market makers will get 25 cents a contract. The exchange will charge 45 cents a contract for trades executed against orders already in place compared with 50 cents at NYSE Arca. The Boston exchange had previously charged 15 cents a contract for all trades in the penny options. The Boston exchange matched 4.4 percent of contracts traded through July, down from 5 percent for the same period a year earlier, according to Options Clearing Corp., the Chicago-based equity derivatives clearing organization. NYSE Arca handled 10.9 percent of trading through July, compared with 9.1 percent last year. To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net . Last Updated: August 28, 2007 18:07 EDT

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