Options Exchanges Ready For Electronic Linkage

January 23, 2003 (PLANSPONSOR.com) - Plan sponsors and other institutional investors in the US options market stand to benefit from the linkage of five US options exchanges.

In a move required by federal regulators to make sure retirement plans and other institutional players get the best options price, the change will allow primary market makers and options specialists to keep an eye on prices at all the exchanges in order to quickly give their clients the best offer, according to a Reuters story.

Set for the electronic tie-in as of January 31 are:

  • the Chicago Board Options Exchange (CBOE)
  • the American Stock Exchange (Amex)
  • the International Securities Exchange (ISE)
  • the Pacific Exchange
  • the Philadelphia Stock Exchange.

Options are contracts that give the buyer the right but not the obligation to buy or sell a stock at a predetermined price within a set time frame.

The electronic tie-up culminates three years of planning by the exchanges and Options Clearing Corp., which is the facilities manager for the market linking effort.

The new options system is similar to the Intermarket Trading System that electronically links the eight US stock exchanges and the Nasdaq, but will be much more automated. The options linkage system is also more complicated because of the additional classes and series of options.

The initial phase of options linkage kicks off with 14 actively traded equity options, including Apple Computer Inc., Bank of America, General Motors Corp., and Eastman Kodak Co., with the subsequent rollout of all options classes to be completed by March 4. The second and final phase will begin on April 25 and be completed by mid-June.

Shortly after the expansion of multiple listing of options began in 1999, the US Securities and Exchange Commission (SEC) ordered exchange officials to tie in with competing exchanges so that customers would be ensured of getting the best price available.