Pacific Exchange to Add Penny

Discussion in 'Options' started by freehouse, Jun 30, 2005.

  1. Pacific Exchange to Add Penny

    June 29, 2005; Page C4

    The Pacific Exchange, whose parent PCX Holdings is being acquired by Archipelago LLC, said yesterday it plans to start quoting and trading options in pennies by the fourth quarter of this year.

    The proposed change, which requires regulatory approval, would make the San Francisco market the first U.S. options exchange to quote and trade in individual cents rather than nickels and dimes. The exchange said it will submit a rule filing to the Securities and Exchange Commission soon and that it hopes to receive expedited approval.

    PCX Chairman Philip DeFeo, who is also a director of Archipelago, said the move to pennies for options would lead to more transparent and efficient markets by "providing customers with the ability to get the best price to the nearest penny, rather than the nearest nickel."

    The move is unrelated to PCX's pending deal with electronic stock-trading venue Archipelago, Mr. DeFeo said, but he noted that the shift to pennies would "allow for everything to trade on one platform, potentially." Stocks began trading in increments as small as a penny in 2001.

    The move to penny increments also could reduce or eliminate the controversial practice whereby exchanges and traders pay brokerage firms for order flow. The thinking is that as the amount of profit from the spread between bid and ask prices declines, so does the amount of money a dealer is willing to pay to attract orders.

    The introduction of penny-size quotes, which would narrow many spreads between bid and ask prices for customers, also raises questions about the capacity of vendors to disseminate what is already a staggering number of option quotes.

    Elizabeth King, associate director of the SEC's division of market regulation, told attendees of a May conference that the commission would "continue to evaluate whether the potential benefits of penny quoting would justify the risk of less accurate information being disseminated."

    The Pacific Exchange garnered about 8.8% of total options volume in May, making it the country's fifth-largest options market, according to the Options Clearing Corp. Archipelago, which announced plans to merge with the New York Stock Exchange in April, is expected to close its acquisition of PCX in the third quarter.

    Meantime, risk perception in the options market retreated as stocks jumped on an upbeat consumer-confidence reading and a decline in crude-oil prices. The Chicago Board Options Exchange volatility index, or VIX, fell 0.94 point, or 7.5%, to 11.58.

    Write to Cynthia Schreiber at
  2. da-net


    This will be great for those of us unable to use the BSX for trades. I only question is what will this do to the MMs in options that make their living from the spread.
  3. MTE


    I'm not sure it will be all that great. Market makers will suffer and the retail traders are sure to suffer from it.
  4. this will makes firms like timberhill tougher to screw the public.
  5. A bigger disaster than going to nickles and dimes ...
  6. What idiot would want to make a penny wide market on a derivative ...
  7. Thanks Freehouse.

    Not sure even with increasing option volume which is hapening anyway;
    that there is enough volume for that to work on every underlying.

    And except for perhaps the most high liquid stocks, ETF/indexes;
    may just see the penny quotes ,
    5 or 10 pennys @ a time.:D , like now.

    Might be missing something, but dont see how , for example in homebuilders with underlying bid /ask of 5or 6 cents wide why would that be lower at all with a lower volume derivative?????
  8. Trajan


    All this will do is finish off the small marketmakers still left.
  9. Absolutely.
  10. I bought about a week ago a couple of Fed Ex (FDX) Aug 75 Puts and I noticed they at times traded at penny prices and I had never seen that before..

    I thought it was a misprint but even today the closing price on those July 75 Puts (FDXTO.X) was $ .48 ??

    Has this been this way for awhile?
    #10     Jun 30, 2005