The International Securities Exchange plans to launch next week a controversial type of option order catered for large institutions that took 18 months to be approved by U.S. securities regulators.
The all-electronic ISE, owned by Deutsche Boerse’s Eurex unit, said the Qualified Contingent Cross, or QCC order, will be introduced on Monday following U.S. regulatory approval this week.
A QCC order is a complex option transaction that would allow ISE members to cross at least 1,000 contracts without exposure to other participants, as long as the order is tied to a stock component and is priced equal to or better than the national best bid or offer. The order would not trade in front of customer orders that already have been placed, ISE said.
“The QCC order type brings large, institutional crossing business to an efficient, electronic environment,” ISE’s president and chief executive, Gary Katz, said in a statement on Friday.
The proposal was first approved by the U.S. Securities and Exchange Commission in August 2009, but it was opposed by a rival exchange. A procedural appeal from CBOE Holdings Inc., the parent of the Chicago Board Options Exchange, prevented ISE from implementing the order.
Following nearly a year of dialogue with the SEC, ISE said it submitted a revised rule filing in July 2010 and it was approved on Thursday.
“We applaud the SEC in its decision to allow for fair competition between floor-based and electronic options exchanges for these large-size contingency trades,” Katz said.
The proposal had been debated for nearly two years. Opponents contended that because there is no required exposure period, this order could bring greater internalization to the options market. Supporters said the order type would simply automate what is already taking place on exchange floors today.
“I expect the controversy will continue as other U.S. electronic exchanges launch their own QCC order types, which could lower exchange fees and the minimum size quantities for these trades to bring in institutional business,” said David Mortimer, managing director of Pipeline Trading Systems, an option and stock block execution firm.
Companies in this article
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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