New Rival to the Big Options houses

Discussion in 'Wall St. News' started by WallstYouth, Apr 28, 2008.

  1. Whale of an Idea

    By Barrons
    Last update: 4:53 a.m. EDT April 26, 2008Print E-mail RSS Disable Live Quotes

    EXCHANGE EXECUTIVES ARE lucky to have mostly completed stock offerings or sold out to the highest bidder. Their quasi-monopoly over options trading is facing tough new competition from trading systems designed for niche strategies that can be difficult to pull off at traditional bourses.

    These new systems, like the electronic-communications networks that took market share from stock exchanges, are now surfacing in the options market. This could make for uneasy alliances, or prompt exchanges to spend deal dollars to limit competition.
    Ballista Securities said last week that it expects to launch one of these rival systems in May. It's likely to be well received. Ballista will let institutional investors, now driving trading volume, aggregate exchange and off-exchange trading interests that are now hidden from view. But Rome didn't burn in a day, and exchanges won't lose primacy overnight. For that to happen, the Options Clearing Corp. would have to start clearing non-exchange trades.

    Serendipitously, the exchanges own OCC and have veto power over the rules. For now, firms like Ballista must work with the exchanges to clear such trades. (Unlike stock issued by corporations, options are created, and ultimately cleared, by OCC in response to investor demand. This makes OCC critical to the market.) But one measure of market sentiment about the OCC restriction will be the client list for Ballista's new ECN. If big, respected institutional investors join up, that could suggest restlessness with traditional exchanges. Exchanges could be in a tough spot trying to balance the needs of individual investors against demands from institutional traders now driving fast-growing trading volumes, and burgeoning exchange revenue.
    The time may be ripe to challenge the OCC restriction. Technology is rapidly changing, and regulators are increasingly comfortable with electronic markets.{3853BD0F-C4E4-4125-A9FC-A37090995D62}