SEC seeks comments on plans to link options markets
Reuters Story - February 24, 2000 19:07
WASHINGTON, Feb 24 (Reuters) - The Securities and Exchange Commission released for public comment on Thursday three separate plans by options exchanges to form an electronic linkage that would ensure best prices for customers.
While there was agreement on a number of topics, the plans differed on whether the linkage should require intermarket price/time priority, where the exchange that posts the best price first would receive the order flow.
The proposal filed by the American Stock Exchange (AMEX), Chicago Board Options Exchange (CBOE) and the International Securities Exchange (ISE) would allow an exchange receiving an order to match a better price that was displayed in another market, meaning there would be no price/time priority.
The big exchanges like AMEX and CBOE contend that a price-time priority system would mean customers and brokerage firms no longer could choose which exchange handled their orders because those orders would be directed automatically to the exchange that posted the best price first.
They also feel that strict price-time priority ignores other factors critical to pricing, including liquidity and the ability of an exchange's market makers or specialists to execute a customer's entire order quickly.
The Philadelphia Stock Exchange would impose a strict price-time priority rule, so even if an exchange receiving an order is quoting at the national best bid or offer (NBBO), it would not trade with that order unless it was the first market that displayed the best price, the SEC said.
Instead, it would have to route the order to the market with price/time priority.
Meanwhile, the plan by the Pacific Exchange would allow an exchange quoting at the NBBO, but not first in time, to either send the order to the market that was at the NBBO first, or execute the order at a price better than the NBBO.
SEC Chairman Arthur Levitt has called for a linkage in the options markets so customers could see the best prices. He drew a January 19 line in the sand for the exchanges to come up with a single plan.
Unable to come to a complete agreement, the exchanges filed three separate plans with the commission, one backed by AMEX, CBOE and the ISE, and separate ones by the Pacific Exchange and the Philadelphia Stock Exchange.
Levitt has said "We will not let differences among the options exchanges stand in the way of this historic opportunity to achieve a truly national options market."
His agency will send the plans out for public comment for 30 days.
In other options news, the SEC on Thursday approved ISE's application to become a registered exchange, turning ISE into a a self-regulating body that must enforce its own rules as well as federal securities laws.
The New York-based ISE, a fully electronic exchange, is the first exchange to register with the SEC since CBOE in 1973.
Although it has yet to begin operating, ISE ultimately plans to trade 600 of the most active options classes.
Copyright 2000 Reuters Limited. |
