A well-defined options playing field could see some degree of a shakeup as BOX Options Exchange moves to secure a greater percentage of the overall market share. The group is planning on opening a new floor with approximately 40 human traders. Consequently, the move is being met with widespread discontent from other exchanges, many of which filing complaints or letters criticizing the ambitions of BOX, according to a Wall Street Journal report.
BOX Options Exchange currently only oversees around 2.2 percent of the overall options market share, citing data from the Options Clearing Corporation. The largest players, CBOE and NASDAQ PHLX, enjoy a 25.6 percent and 15.3 percent market share respectively. Its smaller size and current standing amongst other exchanges has so far not deterred BOX, which has moved full steam ahead in seeing its new pit launched.
The initiative runs counter to a decades-long trend which has steadily seen Wall Street traders phase out floor trading in favor of electronically executed trades. Many exchanges have since put their faith and operations in the hands of computer programs, displacing the chaos of open pits in the options markets – however, there are some investors that prefer a human hand to computing, namely with regard to executing complex orders.
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Human traders push back
A potential launch of a new floor trading initiative would constitute the first open-outcry trading put in several years. BOX Options Exchange is eyeing around 40 human traders for the pit, based out of the Chicago Board of Trade Building. Despite its unorthodox nature, the group’s venture into this field does reflect a bid to secure more business, given that the segment has been steadily downsized in recent years – open outcry accounts for only 13 percent of the US options trading market.
Thus far, any plans for BOX to proceed with its floor trading ambition will come in spite of heavy opposition from other exchanges. Many leading exchanges have opposed specific elements of the initiative on several grounds. While proponents of trading floors, the opposition does harbor fears of a more fragmented marketplace with business activity being less transparent and harder to execute.
This has resulted in multiple comment letters filed reflecting these concerns. Moreover, defiance to BOX’s plans also focuses on its operational capabilities. Should the trading floor be approved, it could likely sit idle and empty for multiple months, which could result in poorer prices for customers with not enough market makers competing.
Training lapses of new traders also complicate the issue, with exchanges arguing that the exchange should stay dormant until these individuals, i.e. market makers, are properly trained and ready to participate.
With the line in the sand clearly drawn, BOX still is charting a course ahead, however the decision will ultimately lie with the US’ Securities and Exchange Commission. The US regulator is slated to make a final decision on the new trading floor as early as August 2, 2017, per a regulatory filing.