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Strategies & Market Trends : Canadian Options -- Ignore unavailable to you. Want to Upgrade?

To: Sleeperz who wrote (810)	1/11/1998 8:28:00 PM
From: Porter Davis	Read Replies (2) \| Respond to of 1598

Options update for Jan 9...As ye sow, so also shall ye reap. Something truly remarkable happened on the TSE Derivatives floor on Friday. There was a mutiny. The background: A small but critical part of our operating system failed. This was not the first time this particular error had occured, and was only one of multiple breakdowns that have taken place in the last several months. To compound matters, the exchange didn't even notify the traders that the breakdown had occured even though they knew! Now, bear in mind that the market was plummeting and serious money was on the line. Well, a large number of specialists decided that enough was enough, and that if they couldn't rely on the exchange's system to give them an accurate number for their delta position, they weren't going to risk any more money by continuing to trade, and they stopped calling markets. Period. Roughly one-third of the options classes in Toronto ceased trading. Now, I realise this may have inconvenienced clients or cost them money, and I feel bad about that, but in reality it was no different then the previous trading stoppages caused by system break-downs, something completely out of our hands. The next twenty minutes was like something out of the Keystone Kops as we moved up the food chain of exchange management; they somehow made it out of their tower on Bay and one by one found the trading floor (without a map!). It was truly comical to watch as they huddled in a hallway leading onto the floor, pulling on their chins looking out at the floor with no idea what to do. (They even had a security guard stationed between them and the floor, as if the peasants were going to turn their pitch-forks on the lords.) They sent low-level staffers out to ask the traders what was wrong and nodded mutely in a circle when they got their answers. (I think it's fair to say that between the two of them, Steven Rive and Susan Crocker, the highest-titled people in exchange management for derivatives, could not name or recognise more than ten of the specialists and traders who make their market work.) The uneasy situation was only ended by the bell at 4PM. They disappeared by 4:01. I can't wait to see what happens Monday morning. Now the moral of the story is that in comes this new crop of MBA mandarins about two years ago who have not a clue about trading, but a very deep conviction that whatever they come up with will be perfect and no one else knows anything. They systematically purge everyone who was here before their arrival. They have a sham 'consultation' with the trading community and proceed with their pre-determined agenda to completely automate options and futures. They lie to us that the agenda doesn't exist. They publicly denigrate their own market-place. What, they don't think we can read the papers? They are prepared to spend muliple millions of dollars to bring in a system that is ill-conceived, inappropriate, and inequitable for our market. It will be bad for clients, bad for specialists and only benefit the large dealer-members, owned by (surprise!) the Big Six banks. Do you think the banks have your best interests at heart? I think not. We have tried to present constructive alternatives through-out the piece. At our own expense we went and talked to the market participants in the US markets and presented detailed plans for improving our markets with appropriate technology while still preserving the crucial elements of having human beings involved who could make reasoned decisions and be responsible for their actions. No computer system can assure price discovery and full, open disclosure anywhat like an open-outcry auction does. That is why the largest, most successful options markets in the world continue to use it. What we have needed desperately for years is more support from the exchange and member firms in the areas of publicity and end-user education. They have spent a pitiful amount in these areas, while I get fancy four-colour inserts in my Globe&Mail advertising CBOE seminars in Toronto delivered to my door. And yet, despite their neglect, options in Toronto have survived and are actually starting to grow significantly. Over 35000 contracts each day last Thursday and Friday; record open-interest in the TXF; new successful option classes. All we need is for these people to drop their myopic vision and actually listen to reason. Fat chance. They make fun of us, they ignore us, they publically mock the market, and they act surprised when the natives get restless. It's their doing. I don't know what's going to happen tomorrow or the next day or next week, but I don't think it's going to be pretty. We have nothing much to lose, and if they want war, we'll give it to them. Happy trading. Porter