With BOX given the all clear to launch as the sixth US options exchange, and other potential entrants on the horizon, Jim Kharouf takes a look at the developments driving rapid change in the industry
Heavy competition between the US's five options markets and
now the impending entrance of Boston Options Exchange (BOX) has
created a scramble to introduce new technology and keep up with
new and controversial practices.
BOX, which is set to become the sixth US options exchange
when it launches on 30 January, has set off a heated debate
among exchanges and participants about the difference between
competitive improvements and moves that will further weaken the
options industry. The latest innovation will be BOX's price
improvement period (PIP), which in simple terms is a 3-second
auction that guarantees that customer orders will be at least
one cent better than the national best bid or offer
That issue, along with the ongoing debate over what
regulators should do about order internalisation and payment
for order flow, has sent some exchanges down paths they claim
are fraught with danger. But since such practices are ruled
legal by SEC, they must join in for competitive reasons. On the
PIP issue, International Securities Exchange (ISE), Chicago
Board Options Exchange (CBOE) and Philadelphia Stock Exchange
(PHLX) have fervently opposed the use of such mini-auctions on
that grounds that it will not necessarily improve the quality
of the markets for customers. But all three have already filed
for approval of some type of penny improvement mechanism. BOX
officials and supporters say PIP is a transparent way for
customers to get a better price than the NBBO.
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