SEC Approves Plan to Link Options Markets
The Securities and Exchange Commission on Wednesday approved a plan to start linking U.S. options exchanges by February so that customer orders will be executed at the best available prices.
The implementation plan, which was submitted by the Chicago Board Options Exchange and other options markets, would end 3 1/2 years of wrangling between the government and the exchanges. Last year, SEC Chairman Harvey Pitt criticized the exchanges for delaying the project, and set a deadline for them to come up with a timetable.
The new plan calls for the five exchanges to begin testing, by Dec. 1, the electronic linkage they are developing. They would have to implement the first phase of the linkage by Feb. 1, and the second and final phase by April 30.
“This brings us one step closer to fruition of a project that can help investors by bringing more efficiency to the market,” Pacific Exchange spokesman Dale Carlson said. The timetable approved today amends a linkage plan approved by the SEC in July 2000.
Stock “put” and “call” option contracts allow investors to make big bets on stock moves with a relatively small investment.
In the $650-billion options industry, dealers who are members of one exchange sometimes have to use a telephone to access better quotes on other markets, or make special arrangements with the other exchanges. The process has been described as slow and unwieldy by exchange officials.
With linkages, dealers will be able to promptly match the best available prices on any exchange. Investors are likely to benefit by getting narrower spreads between options’ buying and selling prices, dealers have said. U.S. stock markets are already linked electronically through the Intermarket Trading System.
The options exchanges are the CBOE, American Stock Exchange, the Pacific Exchange, the Philadelphia Stock Exchange and the International Securities Exchange. They have picked the Options Clearing Corp., a not-for-profit organization that they own, to set up electronic links among themselves.
