NYSE Relocates Amex Options Traders to Big Board to Halt Losses
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By Edgar Ortega and Jeff Kearns
March 2 (Bloomberg) -- NYSE Euronext is betting a refurbished trading floor will end the American Stock Exchange’s eight-year streak of losses in the $1.9 trillion U.S. options market.
Chief Executive Officer Duncan Niederauer invested about $5 million to win more options orders from brokerages that rely almost exclusively on automated trading systems. As part of the transition, NYSE finished moving about 300 traders and floor officials from the Amex building to the New York Stock Exchange today.
NYSE Euronext spent $260 million last year to buy Amex, which lost market share in options every year since 2000 to rivals with faster trading systems. New York-based NYSE, the biggest owner of exchanges, is replacing the Amex’s ANTE trading system with the Arca platform to ensure the takeover contributes to earnings this year, Niederauer told investors Feb. 11.
“Anything that moves the Amex options to a better technology platform is good,” said Kevin Fischer, head of block execution at Greenwich, Connecticut-based Interactive Brokers Group Inc., one of the companies being moved. “Given that the requirements for brokerages and the level of technology are much more advanced than a decade ago, it was really necessary.”
The Amex and Arca combined can capture 25 percent of daily options trades by the end of the year, up from 16.3 percent in January, Niederauer told reporters today. The Amex handled 5.8 percent of the contracts traded last year, down from 28.6 percent in 2000, according to Chicago-based Options Clearing Corp.
Execution Times
The new system will cut down execution times for Amex specialists by making it easier for them to place computers next to the exchange servers that match trades, according to Ed Boyle, NYSE Euronext’s New York-based head of U.S. options. Brokerages outside of the exchange will now be able to stream hundreds more orders to the Amex electronically, he said in a Feb. 11 presentation.
The new platform may slow down brokers because it requires them to enter details of their order before negotiating a trade in the pit, said Glenn Indik, a 28-year Amex veteran and president of GI Brokerage Corp. Floor brokers currently handle about 80 percent of trades at the Amex, compared with 25 percent on Arca, which has a smaller trading floor in San Francisco.
“The new technology will make it harder to execute trades quickly,” Indik said Feb. 27, before the system began. “Our businesses are at stake. All the other options exchanges will have an advantage over us because they’re not being asked to do this cumbersome step.”
1.5 Million/Second
The new system is 300 times as fast as the old Amex technology, Boyle told reporters today. It can handle as many as 1.5 million quotes a second, compared with only “thousands” for the Amex, he said.
NYSE Euronext waived trading fees for five months to offset the cost for brokers making the two-block move west to the Big Board’s Blue Room and Extended Blue Room. While brokers have tested the system, the exchange’s decision to discontinue use of the Amex platform over the weekend meant they don’t have a fallback.
“We’re real apprehensive about the realities of how trades are going to take place,” said Robert Heller, a managing director at Chapdelaine Brokerage LLC in New York. “We haven’t seen all parts of the system work.”
Niederauer said today that the start of trading on the new Amex system has “gone flawlessly.”
CBOE, ISE
NYSE Euronext will also face increased competition from the Chicago Board Options Exchange and Deutsche Boerse AG’s International Securities Exchange. The CBOE, which already handles a third of all contracts in the U.S., plans to develop a second market this year catering to brokerages that rely on rapid-fire trading strategies. The ISE, based in New York, plans to draw more business by making it easier for European investors to buy and sell U.S. options.
To Marc Liu, chief executive officer of Integral Derivatives LLC, any improvement from Amex’s technology will make it easier to compete.
“I’m sure there will be some problems the first couple of weeks,” said Liu, whose firm is largest Amex options specialist. “But in terms of the overall picture, and the long-term technology, we see it as a massive positive for us. Having an exchange with more resources, with a long-term plan, that’s a very powerful change.” |
