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By Mary Haffenberg, BridgeNews
Palm Beach Gardens, Fla.--May 5--Make no
mistake. If the legislation called Shad-Johnson is
repealed, as is being discussed on Capital Hill and
in the country's derivatives and equity markets,
and trading of single-stock futures is legalized,
the country's largest options exchange will trade
them, said William Brodsky, chairman and CEO of
the Chicago Options Exchange.
* * *
Brodsky made his comments at the 18th annual
Options Industry Conference being held here for
three days.
Although the options industry has been
discussing intermarket linkage, market
fragmentation, payment for order flow, options
quotations systems, decimalization,
screen-based and floor trading and a plethora of
other issues in which in the industry is embroiled,
the CBOE also is discussing merging with the
Chicago Board of Trade.
And Brodsky has been particularly vocal on the
listing of single-stock futures. Listing the new
products could put the CBOE in head-to-head
competition with the CBT and the Chicago
Mercantile Exchange, which have both discussed
listing single-stock futures should it become
legalized.
"If they're going to be futures on individual
stocks, we will trade them," Brodsky said in a
discussion with reporters at the conference,
adding that the assumption is that registrants of
the Securities and Exchange Commission will be
allowed to list the products.
PULLING FOR SEC REGULATION
But Brodsky also has been outspoken in calling
for the SEC--not the Commodity Futures Trading
Commission and not the two regulators
together--regulate single-stock futures.
"We're not against single-stock futures," he said.
"The real issue is how you regulate them. We
want regulations that are the same for stocks
and stock options," adding that the SEC, which
regulates stocks and stock options, has stricter
insider trading regulations than the CFTC, which
regulates futures products.
Joint regulation by the two regulators would
result in a quagmire, he said.
Arthur Levitt, the chairman of the SEC and the
keynote speaker at this year's conference,
reportedly said the SEC should regulate
single-stock futures, but the futures exchanges,
particularly those in Chicago, have made it clear
that they don't want the SEC to have sole
jurisdiction.
The two sides on repealing Shad-Johnson are
expected to heard again at a Senate Banking
Committee hearing scheduled Monday in Chicago.
Also on Monday, Brodsky said, the investment
bankers hired to investigate whether the CBOE
and the CBT should merge will brief him on their
findings thus far. Investment bankers
representing each exchange have been
crunching numbers for the past several weeks.
The merger issue came about when the CBOE
said the CBT's demutualization plan will
extinguish full CBT members' exercise rights at
the CBOE.
"We'll look at (the entire issue of merging) in a
comprehensive way," Brodsky said. "We're not
going to take out the exercise right" and address
that separately.
Although Brodsky wouldn't reveal whether he
thought the two exchanges should merge, he
noted that outside the United States options
and futures and, in many cases, equity
exchanges have been merging.
"It makes business sense," he said.
Thomas Bond, the CBOE's vice chairman, said
that as a result of a merger cost savings could
come in the form of money spent on technology,
the CBOE's biggest expenditure besides staff.
The CBOE also has had ongoing talks with the
Frankfurt-based Eurex exchange, which is slated
to have a joint electronic-trading platform with
the CBT beginning this summer. In accordance
with that agreement, listing dollar-denominated
products on the platform must receive CBT
approval.
The CBOE's own stand-alone screen-based
electronic trading platform should be ready to go
for after-hours trading in the first quarter of
2001, Bond said.
DECIMALIZATION
In other issues facing the options industry,
changing price quotes from fractions to decimals
could happen around Labor Day in the form of a
pilot program, assuming the exchanges are ready
to make the switch, Brodsky said.
Exchanges are having trouble making the SEC's
order to change prices into decimals because
their operating systems have not bee upgraded
sufficiently to handle the expected increase in
message traffic and trading volume.
In terms of price linkage among the country's
options exchanges, Brodsky said he was
optimistic that the proposal that the CBOE, the
American Stock Exchange and the
soon-to-be-launched International Securities
Exchange backed will prevail.
In his keynote address Friday morning, Levitt
said, "If a market is not quoting the best price
when it receives an order, it must be able to
match the best price or ship it to the market
with the best price."
Brodsky said the time/price priority pricing that
the Pacific and Philadelphia Stock exchanges
endorse would not be as fast.
The SEC is expected to announce a decision on
the linkage proposals soon.
"There's more growth, change and competition
(in the options industry) than we've ever seen,"
said Brodsky, who has been in the derivatives
business for 32 years. End [Begin BridgeLinks]
Mary Haffenberg, BridgeNews, Tel:
312-454-3477
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