Forefront Communications

Wall Street Journal: ​Proposal to Launch Options Trading Floor Stirs Outcry

Mark Dowd

Mark Dowd

Many Wall Street traders have lamented the steady demise of floor trading. But now that one exchange is trying to launch the first U.S. open-outcry trading pit in decades, it isn’t exactly being welcomed.

Box Options Exchange LLC hopes to open a new floor for about 40 human traders at the Chicago Board of Trade Building. The exchange, whose electronic platform has one of the smallest market shares in U.S. options, is trying to build up its business by vying for orders executed via open outcry.

While trading floors have dwindled in almost all markets because of a shift to electronic trading, old-fashioned shouting and hand signals in open pits have endured in the options market, where investors sometimes prefer human traders to execute complex orders rather than computer programs.

It would be a needed respite for floor traders, many of whom have sought new jobs since screen-based trading took off in the 1990s. Intercontinental Exchange Inc., which owns the New York Stock Exchange, ended floor trading for options on futures in 2012, and CME Group closed most of its futures trading pits in 2015. The largest options exchange, Chicago Board Options Exchange, has seen its floors thin to about 440 people earlier this year from 10 times that in the late 1980s.

Box’s initial plan, though, sparked critical letters this year from Chicago Board Options Exchange owner, CBOE Holdings Inc., and the NYSE, as well as trading firms that said another trading venue will make it tougher to do business as activity potentially becomes less transparent and more fragmented.

But Box’s efforts have rankled some U.S. options traders, who are already dealing with a labyrinthine market structure. A new open outcry pit would push market makers to staff the new floor and incur higher costs, said Peter Maragos, chief executive of Dash Financial Technologies, a broker dealer and technology provider.

“Where’s the benefit for the client?” said Mr. Maragos, whose firm has brokers on the CBOE floor. “We’re just adding more complexity, more fragmentation.”

Read the full article here.

Leave a comment

Your email address will not be published. Required fields are marked *