UPDATE: Boston Options Exchange Drops 'Make Or Take' Pricing
August 28 2009 - 11:47AM
Dow Jones News
The Boston Options Exchange announced Friday it will drop a
pricing scheme for some options contracts after it failed to draw
business.
The move follows a similar fee shake-up in June that has
attracted more trade in options on exchange-traded funds, according
to a senior executive at the exchange.
The Boston Options Exchange, or BOX, will eliminate so-called
"make or take" pricing on options that trade in penny increments,
pending approval from the Securities and Exchange Commission.
Under this pricing scheme, exchange customers who remove
liquidity from markets in penny-priced options pay a fee, whereas
customers providing liquidity earn rebates.
The maker-taker model for options, also employed by NYSE
Euronext (NYX) and Nasdaq OMX (NDAQ), is geared toward high-speed
electronic participants that move in and out of markets
rapidly.
In July, the all-electronic BOX market dropped taker fees on
three ETFs in a bid to boost volume - the SPDR Trust Series I
(SPY), the PowerShares QQQ Trust (QQQQ) and the iShares Russell
2000 Index Fund (IWM). As a result BOX has seen a slight increase
in market share across those products. More important, according to
BOX Vice Chairman William Easley, the fee shake-up has brought new
participants to BOX's markets, including more private
investors.
"It's simply a business decision," Easley said of the Friday
announcement in an interview. He characterized the maker-taker
pricing model as an "experiment" that didn't pay off for BOX.
BOX implemented maker-taker pricing about two years ago, and
while Easley said it increased trader participation in BOX's most
actively traded markets, it didn't improve liquidity in
lesser-traded classes of options.
Starting in September, BOX's public customers won't have to pay
a trading fee on the 57 classes of penny-priced options, whereas
all other customers will pay 20 cents per contract.
Easley said the new fee structure won't hurt BOX's revenue. "We
don't have to gain much market share to make it worthwhile."
For August, BOX's overall share of the U.S. options market has
been about 4.5%, slightly higher than in July.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com