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Strategies & Market Trends : The Final Frontier - Online Remote Trading
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From: TFF5/23/2006 4:56:31 PM
   of 12617
 
CBOE To Adopt PIP For Open Outcry
05/22/06
Wall Street Letter

The Chicago Board Options Exchange wants to adopt a penny price improvement process for open-outcry trading on the floor
o provide better execution for floor-based orders. Currently, open-outcry orders are executed at CBOE's best bid and offer, while CBOE's electronic price improvement mechanism, AIM, and all-electronic competitors Boston Options Exchange's PIP and the International Securities Exchange allow for prices to be improved in pennies through an automated process.

CBOE, which still executes about 50% of its volume--mostly large orders--through open outcry, had to change its floor-based system if traders are to continue using it, traders said. "Order entry firms will have the enhanced ability to satisfy their due diligence and best execution obligations through open outcry trading and a competitive alternative to routing orders in an electronic environment," CBOE officials wrote in a related filing with the Securities and Exchange Commission. "The best execution part [of CBOE's plan] is critical, because we need to justify floor-based execution to the management and the SEC," one trader said. Certain large index orders, such as options on the S&P 500 index, can only be executed on the floor. The SEC has been leaning on brokerage firms to use price improvement mechanisms to obtain better execution for all types of orders (WSL, 11/4).
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