CBOE's share of options declines
Rival gains ground on leading market after matching fees
Bloomberg News
Published August 3, 2006
The Chicago Board Options Exchange's lead as the nation's biggest market for stock and stock-index options shrank in July, as the International Securities Exchange matched fees the CBOE uses to attract business.
About 53.3 million contracts changed hands at the CBOE last month, accounting for 34 percent of U.S. trading, according to the Chicago-based Options Clearing Corp., which guarantees U.S. stock-options trades.
New York-based ISE handled 45.9 million contracts, or 30 percent of all trading. In June, the CBOE had a 37 percent market share, while the ISE had 28 percent.
Five of the six U.S. stock-options markets, including the CBOE and the ISE, collect fees from market makers that are used to pay companies to send business to the exchange in a practice called payment for order flow. In January, the CBOE boosted its per-contract fee to 65 cents. The ISE matched that fee July 1.
"A higher fee allows us to be more competitive," Bruce Goldberg, the ISE's chief marketing officer, said Wednesday.
Not all brokers accept payments, and brokers use many other measures, such as the pricing and number of contracts offered, in decisions over where to route their orders.
"It would be very difficult to point the finger and say it is this, but certainly payment is a factor," Goldberg said.
"We haven't had time to break it down by class and determine how much it is a factor," CBOE spokeswoman Carol Kennedy said. "It's too soon to determine."
The Securities and Exchange Commission is examining whether payment programs create conflicts of interest that keep brokers from obtaining the best deals for their customers, according to Elizabeth King, the SEC's associate director of market regulation.
"We are particularly focused on those brokers that appear to make order routing decisions based on inducements, such as payment for order flow or internalization," King said at an options industry conference in May.
"Where such conflicts exist, brokers should be able to explain why their order routing decisions satisfy their best execution obligations."
The SEC has asked the exchanges to begin quoting contracts in penny increments next year instead of in nickels and dimes.
The change may mean the end of payment for order flow programs because it would crimp market maker profits.
NYSE Arca, the options exchange run by NYSE Group Inc., handled 9 percent of the 154.6 million stock-options contracts that changed hands last month, down from 11 percent in January.
The American Stock Exchange handled about 9.5 percent of all U.S. stock options trades last month, while the Philadelphia Stock Exchange handled 13 percent.
The Boston Options Exchange, the newest market and the only one not to have a payment for order flow system, handled 5 percent.
July Market Share US Options
CBOE....34%
ISE.....30%
PHLX.....13%
AMEX.....9.5%
NYSE ARCA....9%
BOX.....5% |
