Nasdaq Plans to Gain Volume by Opening Its Lines to Options

Discussion in 'Wall St. News' started by freehouse, Aug 27, 2005.

  1. Nasdaq Plans to Gain Volume by Opening Its Lines to Options

    Staff Reporters of THE WALL STREET JOURNAL
    August 26, 2005; Page C4

    For stock exchanges, "options" is the buzzword these days.

    Nasdaq Stock Market Inc.'s plan to allow its customers to route options orders to the six U.S. options exchanges illustrates how stock markets are tapping the booming options business as a way to boost their business and provide more services.

    In recent months, Nasdaq had been focusing its message on stocks, stressing that its primary goal was to capture more stock trading taking place on the New York Stock Exchange.

    Now, Nasdaq is branching out, at least a little. The New York-based stock market said it would let its Wall Street dealer customers use the market's routing service for trading options, which give investors the right to buy or sell a security at a particular price at some point in the future.

    Nasdaq's move, disclosed in a Financial Times article yesterday, comes amid a boom in options trading.

    But Nasdaq won't become an options exchange. Instead, it will provide the technology for brokerage firms to send their options orders quickly through Nasdaq to the exchange with the best price.

    "It stays true to our focus on equities," says Chris Concannon, a Nasdaq executive vice president. "Buying an options exchange would be away from that focus."

    Earlier this year, the New York Stock Exchange announced its return to options trading through the planned acquisition of Archipelago Holdings Inc., which had already announced a deal to buy the parent of the fifth-largest U.S. options market, the Pacific Exchange.

    Nasdaq has proceeded down a different path -- getting a piece of the fast-growing business without being right in the middle of it. It is already a crowded and competitive market ripe for consolidation, analysts say, so building a platform to compete with the existing markets could be an uphill battle.

    Mr. Concannon said the new offering, to be launched early next year, isn't expected to have an immediate impact on Nasdaq's financial results.

    The NYSE considered buying the Philadelphia Stock Exchange, the country's fourth-biggest options market, according to documents filed with the Securities and Exchange Commission.

    Philadelphia exchange Chairman Meyer Frucher called Nasdaq's strategy a validation of the idea that exchanges have to move "into an era of side-by-side trading, where we will be able to trade stocks, options and ultimately futures on one platform."