The Chicago Board Options Exchange, the Cincinnati Stock Exchange and Reuters Holdings PLC said Thursday that they plan to build the world’s first electronic network for 24-hour trading of stocks and stock options.
The developers plan to invite other domestic and foreign securities exchanges to join the computerized order-matching network, said CBOE President Charles Henry.
Asked if those invitations would include the New York Stock Exchange, the nation’s largest securities market, Henry replied: “We certainly have not discussed excluding other exchanges.”
Ray Pellecchia, a spokesman for the New York Stock Exchange, said he had no immediate comment on the announcement.
The network would be similar to electronic trading systems being developed by Chicago’s futures exchanges, theoretically giving investors around the world 24-hour access to international financial markets.
Officials said they could not estimate a start-up date for the system, which will require approval from the Securities and Exchange Commission.
The CBOE owns the majority of memberships on the Cincinnati Stock Exchange, which lists the 300 largest-volume issues traded on the New York Stock Exchange.
The Cincinnati exchange is the only fully computerized securities market in the United States, using a computer to match buy and sell orders. It averaged 1 million shares traded per day last year. Volume on the New York Stock Exchange typically totals more than 120 million shares per day.
IBM Traded Around World
Henry said in an interview that the CBOE’s decision to develop an electronic trading system was a reaction to the increasingly international nature of investing.
Shares of IBM, for example, are traded by investors in Europe, Tokyo, Singapore and the United States, he said.
“We’re seeing globalization enter into the stock and securities markets as it has in other markets,” Henry said. “We want to be at the forefront by opening up access to our marketplace.”
The Chicago Board Options Exchange is the world’s largest market for stock options and stock index options. A stock option is a right, but not an obligation, to buy or sell shares of a given stock at a specified price by a future date. Stock index options involve “baskets” of stocks, such as those represented by the Standard & Poor’s 100 and 500 indexes.
Investors use stock options to reduce their risks in the stock market or to speculate on price movements.
London-based Reuters, a leading vendor of financial information, would supply the technology for the system through its Instinet Corp. subsidiary.
Reuters and the Chicago Mercantile Exchange are developing a similar system, called Globex, for 24-hour trading of commodity futures contracts. A future is a binding contract to buy or sell a commodity or financial instrument at a specified price on a future date.
Globex is expected to become operational this fall, as is Aurora, a competing system being developed by the Chicago Board of Trade, the world’s largest futures market.
Globex already has received commitments from three other futures exchanges, the New York Mercantile Exchange, the Sydney Futures Exchange of Australia and the French futures exchange known as MATIF, to offer some of their products for trading on the system.