It's funny how many people (i.e. specialists/options MMs) have to lie, cheat, and steal to earn a living, because they'd go hungry any other way. I really hope BOX will succeed.
Just a note. Why do we need another option exhange? Is option volume increasing or decreasing? Does the ISE and the four option exchanges provide enough liquidity? If trade problems are really option exchange systems(auto-ex , fills , reports etc.), maybe that issue should be addressed. Will another exchange benefit the customer and improve liquidity and depth of markets? What benefits will this new exchange have over the ISE? The locals(individual market makers) are leaving the floors in record numbers. Will another electronic exchange run by a big market making firm or firms benefit the option trader or just provide more arbitrage opportunities for the big option market making firms who have memberships in all major option exchanges? These are some interesting questions. As a former option exchange local, I see the large market making firms(just a few) controling all the option markets. Is this really good competition? Is this good for the customer? Time will tell. Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
gene, I think the idea is simple - fairness for all. i.e. Eurex - which has shown dramatic growth there is one exchange that operates as the BOX is intended. i.e. what you see is what you get. Until the options exchanges stop providing advantages to market makers then there is room for someone to improve the game. Keep in mind, retail are not allowed under exchange rules to act as off floor market makers. Why? This isn't fair. A purely electronic exchange open to all is the way the markets in the states should have moved years ago. yes, timber hill is behind it but all broker deals and liquidity providers are welcome to trade. First on the queue - regardless of size etc, gets the fill. this is not how the ISE operates.
Exactly sir. The option's exchanges are being set up more and more to benefit the 4 or 5 big firms that will remain standing- SLKHull, Knight, Susquehanna, maybe a few others. Market makers are leaving in record numbers. Exchange software is not up to date, and I have heard it is really bad on the P-Coast. Guys upstairs eat MM's alive with better software. I don't know what another exchange will offer. The ISE has already taken substantial order flow in only 1 year. As far as retail paper goes I don't think people are aware of the risks floor traders take in the options markets these days, sure it was barbeque central in the beginning but it's very different now. I really believe when the day is done all the multiple listings will do nothing but benefit the large firms at the expense of the retail guy. In this regard the SEC seems to be clueless. They are only helping to set up an oligopoly in the options markets. AND, the exchanges follow by adopting policies that favor the large firms at the expense of the sole props and small to middle size firms. It is impossible for a smaller group to own a DPM. If you don't believe me look at the consolidations in Chicago among DPM's over the last year. Large firms will gladly lose money to capture order flow, what's money to Goldman Sachs, they have the long term view and know their huge investment in Hull and SLK will pay off 3fold when volume comes back.
NOT!!!!! def, get off your high horse. If you're implying that the existing options exchanges have been ripping off the retail customers, how do you think Timber Hill made the money to create Interactive Brokers in the first place? Besides, isn't Timber Hill a Primary MM at ISE? I cetainly agree with Gene in that creating another options exchange is not the solution to anything. It just fragments the market further and introduces another arb opportunity for the big boys with the deepest pockets. For all those of you that think strict time priority is the best scenario for the options market, get a clue. It's not that simple. It might work in a "concentrated", "centralized" market like the electronic futures where there is only a few contracts actively traded at one location like the CME eminis and the contracts at Eurex. In the beginning, even for those markets had problems. With strict time priority and no market makers obligated to make markets, many people got regularly screwed when a big order just took out one side of the book. Even with the current volume this happens once in a while as you can see in the Nasdaq emini market on Jan 15 of this year. the price shoots up for two minutes and continues on where it was two minutes ago as if nothing happened... someone must have type in the quantity wrong... There are tradeoffs between floor and electronic markets. For very liquid markets, I agree that electronic markets have advantages. But for markets with low volume, which is most of the out of money options series, you need someone willing to make two sided markets when no one else is willing to play. def, you said you want "fairness for all". Well, what you're suggesting is "fairness" for those small class of very active traders that's trying to scalp the options spread without any of the obligations of a true market maker. For us truly retail traders that just want to take a position, I don't mind the current "unfair" rules at the CBOE where I can get in front of all the market maker and DPM's at the same price because I'm truely "retail". I say the hell with you pseudo market makers that wants to take my spread but are too cheap to pay for a membership. I should be able to get in front of you too damnit!!!
yes, timber hill is a primary market maker as ISE. yes, timber hill has benefited from the rules as they are market makers. However, the firm has always been an advocate of fair and open markets. Market makers jobs are to provide liquidity. Perhaps not all market makers are willing to make markets without a perceived edge. On the overseas markets, the incentives are largely a reduction in fees. Isn't that the incentive you get in open outcry? Thus you can reduce fees for market makers provided they honor their obligations to respond to quote request or mass load prices. We're getting back to the issue of open outcry vs. electronic trading. Here's a quote i've pulled from appliederiviatives.com. Patrick Young who runs the site is based in London. It is an interesting read each month. http://www.adtrading.com/ For the full text of the article see: http://www.adtrading.com/content/co...1&IssueID=763292D6-3B7D-479D-B5E5A0C216591C3C Rather than put forward my own views on open outcry versus electronic trading, here's Chicago exchange veteran Leo Melamed: "To me it has been clear for a very long time that with the coming of the technological revolution, screen-based trading, or what used to be called the black box will overtake the traditional pit-trading environment. It is axiomatic. At the core of the technological revolution lies the capacity to collect orders, transmit them, and execute them in nanoseconds. Technology provides speed, efficiency and lower costs." I'm not behind the decision to launch a new exchange. However, I've got to believe the decision to move forward has to come from lack of progress on the other exchanges. ECN's have made a huge impact on NASDAQ trading. But think about it, ECN's would never have been conceived if NASDAQ had a vision towards the future and treated all traders equally. A quote from patrick young in his march edition in regards to BOX: BOX is simply a brilliant example of the sort of hybrid concepts we have been championing for so long. Under the determined leadership of Luc Bertrand, Bourse de Montréal is continuing its attempts to make a tactical inroad into the US. Perhaps most significantly for all parties concerned, BOX ought to be largely free of the factional bickering evident on the established New York and Chicago exchanges which could yet prove their undoing against more nimble, aggressive competition. The US options/equity derivatives business is an ideal stomping ground for those wooing Promiscuous Investors.
In my opinion, the Box will, 1) be as successful as the ISE; 2) force the traditional exchanges to honor there posted markets; regardless of the current rules, past civil litigation or the DOJ consent decree, the current situation is that posted prices are regularly not honored, posted size is meaningless, auto- execute is regularly manipulated, misinformation is disseminated, time priority is abused, step-up rules don't work and the market makers don't provide a two sided market in a moving stock; 3) stop the MM from using their political clout to pass rules to handicap off floor traders; 4) stop the common practice of holding cancels until the underlying moves against the order; 5) open up the market to broker dealers; 6) increase volume; 7) provide a real arbitrage opportunity that can actually be executed against; 8) stop the practice of trading after the fact by abusing the "busted trade rules". From a member of the small class of very active traders who are pseudo market makers that want to take your spread but are too cheap to pay for a membership. We pay more commissions in a day than you pay for your mortgage in a year.
The current equity options markets are an embarrassment. I'm a former member of two of the five exchanges currently engaging in "pseudo competition". (And yes, I did benefit from having advantages which seemed justifiable given the available technology at that time.) The mere announcement of BOX has reduced seat prices, and forced the 5 exchanges to change strategy from endless delay and study of linkage, to reluctant linkage. The characteristics of an exchange which will put at least 4 of the current exchanges out of business might include. 1)A level playing field where all orders are welcome and given true price time priority. (Two sided, computer driven, broken-up pieces of larger orders, broker dealer, etc orders are all permitted) 2)All orders are displayed and firm and available for instant electronic execution. (no fast markets, backing away, turning off auto execution, canceling trades that are unprofitable, etc.) 3)A sensible reduction in the number of option strikes, maturities,and underlying issues so as to concentrate speculative interest and liquidity. 4)Lower transaction costs ($1 or less per contract) 5)True risk based margin requirements similar to current market requirements ( x 2) as a safety factor. Seat prices are a measure of privilege. If we don't own any, we should all want them as close to zero as possible.
The current equity options markets are an embarrassment. I'm a former member of two of the five exchanges currently engaging in "pseudo competition". (And yes, I did benefit from having advantages which seemed justifiable given the available technology at that time.) The mere announcement of BOX has reduced seat prices, and forced the 5 exchanges to change strategy from endless delay and study of linkage, to reluctant linkage. The characteristics of an exchange which will put at least 4 of the current exchanges out of business might include. 1)A level playing field where all orders are welcome and given true price time priority. (Two sided, computer driven, broken-up pieces of larger orders, broker dealer, etc orders are all permitted) 2)All orders are displayed and firm and available for instant electronic execution. (no fast markets, backing away, turning off auto execution, canceling trades that are unprofitable, etc.) 3)A sensible reduction in the number of option strikes, maturities,and underlying issues so as to concentrate speculative interest and liquidity. 4)Lower transaction costs ($1 or less per contract) 5)True risk based margin requirements similar to current market-maker requirements ( x 2) as a safety factor. Seat prices are a measure of privilege. If we don't own any, we should all want them as close to zero as possible.