Box promotes liquidity on most liquid names

8  from  Automated Trader Magazine

June 3rd, 2008 - The Boston Options Exchange (BOX) has announced the creation of a tiered structure for make or take pricing in the three most liquid penny names (QQQQ, SPY, IWM).

The change lowers rates to $.15/$.30 for market makers and $.10/$.30 for non-market makers. The current rate on all BOX make or take names is $.30/$.45 for market makers and $.25/$.45 for non-market makers.

“We expect the new tiered pricing structure will better approximate the cost of providing liquidity in these highly liquid names and will help to diminish some of the inefficiencies market participants may be facing across exchanges,” said Scott Morris, chief executive officer (CEO) of BOX. “BOX is once again taking a leadership role in this effort to reflect the real cost of providing liquidity and to also promote liquidity formation.”

One of the tenets of make or take pricing is to promote liquidity formation by compensating liquidity providers for this implicit cost. However, this cost is not uniform across all option instruments. It is the greatest for the least liquid option classes and smallest for the most liquid option classes.

“If successful in our goal of reflecting the real costs, we will consider introducing additional tiers to continue to better match the costs and promote liquidity,” continued Morris.