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

To: les jarosz who wrote (1315)	1/23/1999 4:22:00 PM
From: Dave.S	Respond to of 1598

Les: I talked to the NNC market makers about the problem you had this week. They believe that your order most likely got misplaced. This sometimes can happen on busy days when a flood of orders may be given to the MM who is handling that stock. There are 5 MM's handling NNC but they rotate the responsibility of the "Book" which contains the orders. Let me explain the current problem they face. The major problem we've got at the TSE options is the lack of automation. Everything is manually done. The handling of an options trade goes like this: 1) Receipt of the order over the phone or terminal and time stamped 2) Order taken by a trader to the square where the option is traded 3) Trade executed 4) Trades written up by both sides on trade tickets 5) Tickets given to input clerk who enters both sides of the trade to be reported to the Cdn Derivatives Clearing Corp. 6) Trades reported back to the firm 7) Limit orders booked by filling out a day order slip or a GTC slip 8) Day or GTC orders placed in the "book" by market makers - the book is actually a filing box or slot in the trading post 9) Market makers continually arranging limit orders to stay current so they don't trade through an order 10) Runners taking the second part of trades to the firms who placed the limit orders 11) Trades reported back to the firm This "system" works well during quiet times but becomes a nightmare during busy times. Problems and errors can occur at any point in this manual process. Twice in the last 5 years the system has broken down - both in the TXO pit. The last Quebec referendum was a fiasco which caused a major drop in client business from which we have yet to recover from. The market makers (Gordon capital) were totally unprepared for the hundreds of orders which piled up on their desk before the opening and the CFO's (change orders) which followed during the day. They were not able to sort through the orders until the afternoon when the market had totally changed in volatility and direction. Not only did the clients who were long puts lose their money but those long calls had no chance to sell until the market had dropped off from the initial surge. Lesson - don't take positions in the TXO's when an event is going to occur which is certain to move the market in a discrete manner. The vol will drop and the market may not open. The solution of course is to automated the whole thing. The TSE is working towards this with a completion date about 2 years away. Hopefully we will not have another referendum before then. I hope this helps you understand the limitations of the options trading at the TSE. Dave