The Chicago Board Options Exchange has been granted approval by
the US Securities and Exchange Commission to change its rules
that limit anticipatory hedging.
The US options exchange said the SEC sanction, granted on
August 18, would allow customers that want to execute large
option trades to hedge positions with a related stock, security
or futures contract before exposing the order to
CBOE’s open auction market — a process
known as a tied hedge.
The CBOE said customers would be able to execute a tied
hedge across all options contracts including the
exchange’s Flex options. However, the bourse said
no date had been set for the introduction of the offering.
Member firms will be able to place hedge orders with a
minimum size of 500 options contracts.
Bill Brodsky, CBOE chairman and chief executive, said the
ability to offer tied hedges was the latest example of the
exchange attempting to replicate the benefits of
over-the-counter (OTC) trading in the exchange-traded
"In the last two years, we’ve introduced a
number of ways for our customers to employ the type of
flexibility found in the OTC market without having to sacrifice
the benefits of exchange-traded trading, such as price and
quote transparency, centralised clearing and the elimination of
counterparty risk," Brodsky said.
Ed Tilly, executive vice- chairman at CBOE, said the
regulatory approval would appeal to trading firms, which would
be able to reduce price risk. "The ability to hedge prior to
execution will enable firms to gain greater certainty in
quoting and pricing their customers’ options
orders," Tilly said.
"As a result, CBOE’s new procedures will make
it easier for firms to facilitate large-sized orders, and will
also result in greater opportunities for price improvement for
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |