Chicago will get its first new open-outcry trading floor in years after BOX Options Exchange won regulatory approval to open a new one at a time when trades are increasingly done on computer screens.
BOX said in a statement Wednesday that it has authorization from the U.S. Securities and Exchange Commission, so the floor will open later this month in leased space at the Board of Trade complex in downtown Chicago.
Very little buying and selling takes place between humans working face-to-face in stocks, futures and other major assets, but the U.S. equity options market is a notable exception. The BOX facility will be the second in Chicago, joining the Chicago Board Options Exchange. Nasdaq Inc. owns a floor in Philadelphia while NYSE Group Inc. has floors in New York and San Francisco. Many of the traders who jostle and shout at those venues say that trading in person gives them a better view of pricing and available liquidity.
BOX is one of the smallest options exchanges. Toronto-based TMX Group Ltd., which owns about 40 percent, has searched for ways to drive more business its way. The open-outcry approval process at the very least cast a spotlight on the company, which handles about 2 percent of volume in the U.S. equity options market.
“This venue will enhance the customer experience at BOX, enabling them to trade large and complex orders more efficiently,” BOX Market LLC Chief Executive Officer Ed Boyle said in a statement. “Customers trading in our new open outcry venue will experience enhanced pricing and superior audit trail functionality.”
The plan drew objections from some market makers as well as exchanges including Nasdaq and CBOE Holdings Inc. CTC Trading Group LLC complained that another venue would strain traders and hurt the market as a whole. BOX is one of 15 U.S. equity options exchanges.
“Simply opening a trading floor does not create liquidity out of thin air,” Steve Crutchfield, CTC Trading Group’s head of market structure and the former leader of NYSE Group’s options exchanges, wrote in a July 10 letter to the SEC. “The direct result will be wider bid-ask spreads, to the further detriment of investors.”
Only a handful of exchanges still have trading floors, their prominence pushed aside by the speed of automated trading. Chicago-based CME Group Inc., a giant in futures trading, shut most of its pits in Chicago and all of them in New York in the past few years. The Chicago Board Options Exchange has had a trading floor in Chicago since its inception in the 1970s. Nasdaq’s Philadelphia exchange moved into a new trading floor in a new building in April.
Trading volume in the equity options market has been relatively flat in recent years. This year through July, average daily volume rose 1.2 percent versus a year earlier, according to Options Clearing Corp.
To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net.
To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net, Rob Urban
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