ISE launches electronic index options trading
Reuters, 10.08.03, 2:46 PM ET
By Doris Frankel
CHICAGO, Oct 8 (Reuters) - The International Securities Exchange, which earlier this year became the largest U.S. equity options exchange, said on Wednesday it has entered the index options arena.
The Chicago Board Options Exchange, the largest options marketplace and leader in index options, declined to comment.
The New York-based ISE, which launched its electronic platform in May 2000, said that the Standard & Poor's SmallCap 600 (SML) index was listed for trading on Oct. 3.
"The listing of SML symbolizes ISE's commitment to bringing competition to index options, the last bastion in the options market where investors have not yet experienced the economic benefits of multiple listing," said David Krell, ISE's president and chief executive officer, in a press release.
While ISE has listed SML, some of the most active index options in the industry can only be bought and sold at the CBOE, which accounts for about 92 percent of the industry's index options business, according to the Options Clearing Corp.
An index option gives the holder the right to buy or sell the underlying index at a predetermined price. But settlement and contract terms are different from equity options. Index options typically settle in cash, whereas equity options settle in stock.
The CBOE lists about 40 index options, including the actively traded Standard & Poor's 500 Index <.SPX>, the S&P 100 index <.OEX> as well as several options contracts on the Dow Jones industrial average.
The exchange holds long-standing exclusive licensing agreements with S&P and Dow Jones for these products. The CBOE has said it has paid dearly for these licenses and spent money in educating and marketing these products to make them popular.
In February, ISE overtook the 30-year-old CBOE to become the largest equity options exchange.
Gary Katz, ISE's chief operating officer, said the exchange is entering the index options market slowly because of circumstance and choice.
"While many investors have asked us to list the most actively traded index options, we cannot currently address those demands because we cannot procure licenses to trade these products," Katz said.
Last month, the Pacific Exchange called on U.S. regulators to ban temporarily the exclusive listing of any new index options products, a practice it views as anti-competitive and costly in transaction fees.
The Pacific Exchange issued its call after the ISE petitioned the Securities and Exchange Commission to ban the exclusive listing of index options.
The latest move comes four years after the expansion of the multiple listing of equity options on various exchanges.
When an option trades at different exchanges, trading volumes dramatically increase, bid and ask spreads are tighter and liquidity is greater. "Index options trading, however, does not yet fully benefit from multiple listing," the ISE said.
Copyright 2003, Reuters News Service |
