NYSE Receives OK for Stock Options Trading
The Securities and Exchange Commission on Wednesday gave the New York Stock Exchange permission to begin trading in options on individual stocks.
The exchange has been trading options on a composite index, based on more than 1,500 stocks listed on the New York exchange, since September, 1983. It added two other index options last year and applied to the SEC for approval to begin trading individual stock options.
Stock options are contracts to buy or sell shares of stock at an agreed-upon price on a specified future date.
The SEC, adopting a rule change, set strict conditions to prevent possible price manipulation from side-by-side trading in stock options and their underlying securities. It required the Big Board to separate the options trading floor from its stock trading floor.
Stock options currently are traded on the American Stock Exchange, the Philadelphia Stock Exchange, the Chicago Board Options Exchange and the Pacific Stock Exchange.
Mixed Reactions
The New York exchange’s entry into the stock options market drew mixed reactions from brokers and officials at the rival exchanges.
“Members (of the other exchanges) have been violently opposed to the New York Stock Exchange getting into this,” said James Gallagher, president of the Pacific Stock Exchange in San Francisco. “Time will tell whether this will be good for the industry.”
A key concern at the other exchanges is whether New York will seek to trade options that already are listed elsewhere. So-called dual trading is allowed only on a very limited basis and requires specific SEC approval, Gallagher said.
He added that the Pacific and other exchanges will step up their marketing efforts to keep current customers and attract traders that otherwise might move to the New York exchange.
Jay Goldinger, a Los Angeles broker who trades extensively in stock options through the Chicago exchange, gave the NYSE options market “a 50-50 chance of survival” because of stiff competition from the other exchanges.
“They’re coming in late in the game. The Chicago exchange is known as a good fighter. It’s not just going to lie down and let New York walk all over it. The key to New York’s success is whether it can get good volume from the very first day.”
‘Pretty Happy’
Another options dealer, however, was more optimistic.
“The industry is pretty happy,” said the trader, who asked not to be identified. “The hope is that the NYSE will bring liquidity to the trading of individual stock options, which has been lacking recently because of the success of the indexes. There is optimism among street sources that because more money will be committed to stock options it will serve to rejuvenate the other exchanges.”
The next step is for the Big Board to nominate the stocks that it wants to trade options on, probably no more than half a dozen at first, and win SEC approval for a lottery to allocate specific issues to the five exchanges. That process will take at least 45 days.
To handle the stock options trading, the NYSE will use the same system of options specialists and floor traders that it now uses to handle index options, said Ivers Riley, NYSE executive vice president for options and index products.
A considerable number of options dealers have informally told the New York exchange that they would apply for specialist appointments to the Big Board’s options market, Riley said. The exchange also will actively seek new traders to boost volume.
