CBOE to again pay brokers for orders

Discussion in 'Options' started by trader42, May 16, 2003.

  1. May 15, 2003

    BY DAVID ROEDER Business Reporter

    Backing away from principle for the sake of market share, the Chicago Board Options Exchange said Wednesday it will resume paying brokerages for orders starting June 1.

    The legal kickbacks, called payment for order flow, have come under federal scrutiny as a practice that could hurt customer interests. But the Securities and Exchange Commission has declined to ban it.

    Meanwhile, the nation's fastest-growing options exchange, an electronic market called the International Securities Ex-change, uses the payments. The exchange is hot on the CBOE's heels for No. 1 status in trading options on individual stocks.

    The CBOE has urged the SEC to forbid the payments. But it bowed to the competition once before, approving a payment system in July 2000 and rescinding it in August 2001.

    In a written statement, CBOE Chairman William Brodsky said the exchange remains opposed to the payments, but they are "often the deciding factor for brokerage firms routing orders.'' Without SEC action, "CBOE is compelled to implement a payment for order flow plan in order to remain competitive,'' he said.

    The exchange will charge its market makers 40 cents a contract for orders from brokerages that accept the payments. That money then would be remitted to the brokerages.

    Each option trading pit could scrap the plan in 90 days if its members don't like it, the CBOE said.

  2. CHICAGO, May 14 (Reuters) - The Pacific Exchange said on Wednesday it has received regulatory approval for a new electronic trading system that it hopes will strengthen its position in the competitive U.S. equity options market.

    The Securities and Exchange Commission gave the thumbs-up for the new system, dubbed PCX Plus, on Tuesday.

    The screen-based trading platform will allow members to make markets from the exchange floor or from remote locations, which the exchange hopes will boost liquidity.

    The system is set to launch in the fourth quarter.

    "PCX Plus is a key element of our business strategy," said Pacific Exchange chairman and chief executive Philip DeFeo in a statement. "Our members are keenly interested in adding advanced trading technology to their operations. It expands our reach and opens our markets to the entire financial community."

    The San Francisco-based Pacific Exchange is one of four U.S. options exchanges that still operate traditional trading floors. All four have lost market share over the past few years to the International Securities Exchange, a fast-growing, all-electronic options exchange.

    In February this year, the New York-based ISE overtook the Chicago Board Options Exchange to become the industry's largest equity options exchange. The CBOE is still the largest options exchange if index options trading is counted.

    Other exchanges, like the Pacific Exchange, are promoting a variety of hybrid business models to combine floor trading with electronic elements. Last July, the CBOE moved toward a hybrid platform that integrates elements of floor and electronic trading.

    Options are contracts that give their owners the right to buy or sell stocks at predetermined prices within a set time period.

    Copyright 2003, Reuters News Service