Montreal know-how powers nascent BOX
Boston options. With a one-third stake, the ME is largest shareholder
DON MacDONALD
The Gazette
Thursday, January 15, 2004
Luc Bertrand, CEO of the Montreal Exchange: "The ME will become a key player in the U.S. equity option market."
CREDIT: PETER MARTIN, THE GAZETTE
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The launch of the Boston Options Exchange this month, powered by the Montreal Exchange's trading technology, stands to help Canada's weak stock-option market by increasing the ME's international visibility, chief executive Luc Bertrand said yesterday.
The electronic Boston Options Exchange, or BOX, is set to begin operations Jan. 30 after receiving the green light yesterday from the U.S. Securities and Exchange Commission. The exchange will vie against five other U.S. option exchanges for a piece of a giant market where 700 million options contracts trade annually. By comparison, just 6.6 million options traded last year in Canada on the ME.
With a one-third stake, the ME is the largest shareholder in BOX. The Boston Stock Exchange and Connecticut-based Interactive Brokers Group are also major shareholders, while brokerage giants Credit Suisse First Boston, JP Morgan, Citigroup and UBS AB hold smaller stakes and will use the exchange.
BOX will use a customized version of the ME's trading platform and claims it can save investors up to $500 million U.S. a year in trading costs.
"The ME will become a key player in the U.S. equity option market and will contribute with its technology and know-how to changing the North American trading landscape," Bertrand, chairperson of the BOX board, told a news conference at the ME.
Brokerage firms using BOX will not have to buy a seat on the exchange, nor will there be specialists - firms who are obliged to maintain a market in an option by buying and selling.
In a departure from practice on other exchanges, brokers trading on BOX will have to participate in a three-second "auction" before filling their own customers' orders. During this period, market makers will have the opportunity to offer a better price. Brokers will have to offer their own clients a price that is at least one cent better than at competing exchanges.
The Chicago Board Options Exchange, which saw its market share eroded by the electronic International Securities Exchange, expressed disappointment yesterday at the SEC approval of BOX and said it will take measures to compete.
Bertrand declined to say how much the ME has invested in BOX or how much revenue it expects to receive. But he did say BOX will produce economies of scale in the use of the trading system and have the effect of keeping the exchange on the cutting edge of trading technology. It will also provide a window on the ME from the giant U.S. market.
"The spinoffs will be enormous for us," Bertrand said.
Market players will be able to gain access to the ME from the BOX trading platform and the ME has already begun receiving new interest from U.S. brokers, said Philippe Loumeau, the ME's executive vice-president for business development and managing director of BOX.
Loumeau said the exchange expects to add 25 full-time employees because of the BOX project.
The ME also announced its 2003 trading results yesterday. The exchange, which has been an all futures and options market since 1999, posted a 21-per-cent increase in total volume last year, with 17.7 million derivatives contracts traded vs. 14.6 million contracts in 2002.
The lion's share of that growth was in the financial futures business. Volume in interest-rate derivatives was up 40 per cent to 9.3 million contracts while stock-index derivatives were up 15 per cent to 1.7 million contracts.
By contrast, stock options volume advanced only two per cent to 6.6 million contracts and Loumeau admitted much more work is needed to promote the use of options in Canada.
In response to a question, Bertrand said the exchange is doing well on its own and has no interest in merging with the Toronto Stock Exchange. He added there are no immediate plans for an initial public stock offering.
dmacdonald@thegazette.canwest.com |
