CBOE may expand hybrid trading
Sources say move would provide broader appeal
(Reuters) — The Chicago Board Options Exchange (CBOE) may seek to expand its hybrid trading system to give specialists and market makers electronic access to the trading floor from remote locations, sources close to the matter said on Wednesday.
The world's biggest options exchange, which faces a threat from electronic trading, is trying to hang on to its dominant position in the cut-throat options industry, the sources said.
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In June, the CBOE launched CBOEdirect HyTS, a new hybrid platform that integrates elements of open-outcry and screen-based trading.
The system allows individual market makers to use CBOEdirect technology to input their own prices, creating deeper markets and a narrower bid-ask spread.
The 30-year-old CBOE pioneered the listing of equity options in an open-outcry environment, and has seen its market share erode with the rise of the all-electronic International Securities Exchange.
"We are in an environment where everyone is going to be challenged to find different ways to reinvent themselves as destinations for order flow," said Steve Braverman, managing director with Tahoe Trading, a market-making firm on all exchanges. "CBOE will allow people who have membership or seat leases to stream in quotes from remote locations," said one options trader, who declined to be identified. "That would increase the liquidity of their market and hopefully lead to greater volume in equity options."
Equity options are contracts that give their owners the right to buy or sell stocks at predetermined prices within a set time period.
Braverman noted that CBOE's plan would have broader appeal because it would open up the exchange's trading floor to large firms, many of which now do business on rival U.S. options exchanges. He said it would allow them to concentrate their resources on CBOE and thus save money.
"This particular circumstance is one that comes out of the idea that many of the major specialist firms have been demanding consolidation from the exchanges," Braverman said.
CBOE's plan might also allow large trading firms who have employees on numerous floor exchanges to consolidate their operations, the options trader added.
Other U.S. options exchanges are moving to counter the threat posed by the New York-based ISE, which became the largest U.S. equity options exchange this year, less than three years after its launch.
Last month, the Philadelphia Stock Exchange said it plans to launch a new electronic options trading system, dubbed Phl XL, during the fourth quarter of this year, pending U.S. regulatory approval.
In a bid to boost its liquidity pool, the Pacific Exchange in San Francisco this month rolled out its new electronic options trading system, dubbed PCX Plus, a platform that allows members to make markets from the exchange floor or from remote places.
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