Options Exchanges Set 10-month Goal For Electronic Linkage
Raul Gallegos
The U.S. Options exchanges have agreed to electronically link their systems by Feb. 1, 2003 at the latest, and they plan to begin testing the first phase of the options linkage plan by the end of this year. Nevertheless, some options executives are griping that older technology at the Chicago Board Options Exchange is delaying the process of connecting all exchanges.
Industry-wide connectivity will create an inter-market trading system similar to the one used by listed stocks, whereby the market with the best price gets to execute the order flow.
Connectivity between options markets has been discussed for many years, but the SEC first directed all options exchanges to interconnect in the fall of 1999. Last December, the chairmen for all the options exchanges met with Securities and Exchange Commission chairman Harvey Pitt in Washington to discuss a joint agreement. Now, months later, the exchanges have agreed to begin testing in December.
By Feb. 1, options exchanges will begin routing to each other all orders eligible for automatic execution, according to a letter sent to Pitt on March 15 by the heads of the five options exchanges. Such orders account for only a small percentage of total order flow. On March 1, the second phase will begin, encompassing the balance of all orders. The entire connectivity plan would be completed by April 30 of 2003, confirmed Edward Provost, executive v.p. of business development at the Chicago Board Options Exchange, and the author of the letter. "This is a top priority for the industry but it's a complicated process that involves connecting every exchange to a central processor," said Provost.
Industry insiders believe the process has been complicated by the technological needs of the CBOE in particular, which must invest heavily in new technology for the plan to work. People familiar with the December meeting say the CBOE was the primary reason other exchanges could not implement the connectivity plan this year. Provost denies such claims and argues that the timing needs of the exchanges didn't vary by more than a few months. However, he concedes, "there is no question that the CBOE systems, by its early design, is not as integrated as the systems in other exchanges." He added that the CBOE will put together a new trading system for the connectivity plan.
Paul Bennett, senior v.p. of market operations for the International Securities Exchange, believes the time frame for this plan is very aggressive as it is. "We have five different exchanges that must be playing like an orchestra in a few months," said Bennett. "This carries a lot of risks." |
