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BOX Options Exchange wants to start floor trading for US equity options

First Published 11th July 2017

BOX Options Exchange, an electronic equity options market that is part-owned by Canada's TMX Group, wants to begin open outcry trading. The company has proposed opening a pit in the Chicago Board of Trade building which would accomodate around 40 traders.

Though almost 90% of US options trading is electronic, standard quotes on the screens are for individual options. Traders seeking quotes for structures involving a combination of strikes and/or expiries typically issue a request for quote (RFQ) from market makers. BOX clearly believes human market makers can - for now - do a better job than machines in providing quotes for these more complicated structures.

Other exchanges, including NYSE, NASDAQ and CBOE, have objected to the plans, as has Chicago Trading Company, an electronic options market maker. They claim that BOX pit would lead to greater fragmentation, reduce transparency, and could distort incentives for order routing. Some of the complaints seem like attempts to stifle competition: Given the market is already fragmented, with a dozen venues having more than 1% market share each, introducing an extra venue seems unlikely to worsen the problem(s). In combination, NYSE (15%), NASDAQ (7.8%) and CBOE (25.6%) account for half of US equity options trading.

The final decision rests with the SEC, which is set to rule on BOX's proposal by 2 August.