Philadelphia exchange to close floor
By Edgar Ortega Bloomberg News
MONDAY, JANUARY 9, 2006
The Philadelphia Stock Exchange, the oldest in the United States, has said it will close its equities trading floor and become a fully electronic market.
The exchange, founded in 1790, said it was making the change to comply with U.S. Securities and Exchange Commission rules that take effect in June, called Regulation NMS, intended to modernize trading. Unlike larger rivals, the Philadelphia Exchange did not develop a hybrid market that combined electronic and floor-based trading. The exchange will rely on its Phlx XL electronic trading system, which has been used since 2004 for options trading.
"It's very clear that the new Reg. NMS favors electronic environments," Benn Steil, a senior fellow at the Council on Foreign Relations in New York, said Friday. He said he expected other trading floors to shut their doors this year because of the rule.
The closing would be the first since March 2002, when the Pacific Stock Exchange shut down its San Francisco trading floor. The National Stock Exchange was first, moving to an all- electronic trading system in 1980. The New York, American, Chicago and Boston stock exchanges still have trading floors.
The Philadelphia exchange handles an average of 5.68 million shares a day, fewer than those traded in the first half-hour of trading at the NYSE. The floor will be used to expand the exchange's customer support desk for its options trading business, according to Barbara Sorid, a spokeswoman for the exchange. About 12 securities firms had floor operations, she said.
Philadelphia is the fourth-largest options market, handling about 11 percent of contracts in 2005. The exchange in 2004 revamped its options electronic trading system to regain business lost to the all-electronic International Securities Exchange, which has become the largest options market.
Options are the right to buy or sell assets at a set date and price, and traders use them to bet on or guard against price fluctuations in the underlying securities.
The new SEC regulations require that orders be executed at the best price available for automatic execution. Brokers would have been forced to send orders to rival exchanges if the Philadelphia Exchange were not able to execute them fast enough because of its reliance on floor trading, Steil said.
The SEC is reviewing plans by both the NYSE and the American Stock Exchange to introduce hybrid markets to comply with the regulations.
The Philadelphia exchange agreed in August to sell control of the exchange to Wall Street brokerage firms including Merrill Lynch, Morgan Stanley, Citibank and Citadel Investment Group, a hedge fund based in Chicago. The exchange posted a loss of $133,000 in 2004, according to its annual report.
"Those equity investments that were showered on them were premised on the fact that they would be able to make some real money by shutting down the floor," said Steil. "Going electronic will help cut operating costs." |
