CBOE sets modest goals for electronic exchange

By Reuters
Posted Jan. 5 at 4:14 p.m.

CBOE Holdings is setting a low bar for success at its newly launched electronic exchange, with officials saying they expect to capture just 1 to 2 percent of the total U.S. options market in 2011.

“There’s an opportunity there,” CBOE Executive Vice-Chairman Edward Tilly told reporters over lunch. “It may take some time to develop.”

C2, as the new exchange is known, garnered 0.7 percent of the market in December, its second full month of operation, figures from the Options Clearing Corp show. There are nine U.S. options exchanges.

This quarter CBOE plans to list its most profitable contracts, options on the Standard and Poor’s 500 Index, at the new exchange.

The index options, available exclusively at the CBOE and known by their ticker SPX, top a short list of major U.S. options contracts still traded mainly face-to-face rather than by computer.

Some analysts have forecast the electronic listing on C2 will trigger a jump in volume, because it will allow high frequency traders — who only trade in electronic venues — new access to the contracts.

“We see the 1Q11 launch of SPX on C2 (bringing this overwhelmingly open-outcry issue firmly into the electronic realm) as likely to significantly expand that product’s appeal,” Macquarie Securities analyst Edward Ditmire wrote in November.

But Tilly expects the bulk of trading to stay on the floor even after the index options are listed electronically, telling Reuters he expects face-to-face trading to stay “vibrant” for at least the next two years.

Complex trades that are popular in the index options are “very difficult to replicate” in an all-electronic environment, he said.

CBOE is awaiting Securities and Exchange Commission approval for rules linking trading of the index options between its two exchanges. The rules would speed up trading at its open-outcry market in Chicago to match the pace at its electronic venue.

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CBOE Holdings

CBOE Holdings Inc. claims it is the largest option exchange in the United States. The company, in addition to its core options trading business, provides marketplaces for trading futures contracts...

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