Wednesday, March 8

The Pacific Exchange's Future?

What will become of the options trading floor in San Francisco now that it is owned by the NYSE? Carolyn Said, from the SF Chronicle:
Margaret Nagle, a spokeswoman for Archipelago, said the Pacific's electronic option-trading, which now uses a system called PCX Plus, will change to an entirely new electronic trading platform in the middle of this year, to be based on Archipelago's technology. "The new platform that we're rolling out includes there being a physical (trading) floor," she said.

In response to conjecture that the trading floor might close this year, she said: "I know nothing of any plans of it being phased out in the near future, meaning anytime this year. That would be news to me. My understanding was that the floor, I can't say will remain in place in perpetuity, but there are no plans to phase it out this year."

So far it appears that the NYSE trading floor will remain in operation along side of it's "Hybrid" electronic trading platform, so the management of the NYSE Group, NYX, must see at least some value in physical trading floors.

But then what does this quote from mean?:
Thain has expressed confidence in the hybrid program and appears to be poised to take advantage of the exchange's newfound independence from its seat holders. The former Goldman Sachs president hopes to expand the NYSE's offerings to include derivatives trading, including equity options side-by-side with sales of the stocks themselves, as well as corporate bond trading.

Will they be traded side by side in New York, or San Francisco, or both?

If both, wouldn't that be redundant? Perhaps San Francisco will be allocated some underlying products and the New York trading floor, others. Perhaps San Francisco will get to trade all of the Nasdaq stocks along side of their options...
In the future, it's possible that floor traders could not only trade NYSE-listed stocks, but also those listed on the Nasdaq. With NYSE-listed stocks already electronically traded on Nasdaq, as well as Archipelago, the NYSE could not only retain some of its own market share, but also eat into Nasdaq's.

Or perhaps foreign equity products along with their derivatives...
Thain has also said he is still considering expanding the NYSE's operating hours in order to compete with European markets, though that has run into some resistance from traders on the West Coast, who are already in the office at 6:30 a.m. Pacific time for the opening bell.

Foreign exchanges trade some of our equities, perhaps we will be trading more of theirs in a bid to capture more worldwide order flow.

But what would be the impact on the Pacific Exchanges trading floor if the following happened?
Alternatively, the NYSE could go after the Chicago Board of Options Exchange or the International Securities Exchange in order to get a bigger piece of the options and derivatives trade.

If the CBOE was aquired perhaps the two floors could once again divide up the optionable stocks like the days of old and reduce the competion between them for the same order flow, loosening up the sometimes very tight spreads on the more actively traded options.

The one underlying certainty for the options trading floor in San Francisco is this, out from under the thumb of the stifling "public-institution" bureaucracy, it now has at least a chance of finding it's niche, getting an edge, and joining the world of profit driven innovation that has been whirling around it for the past twenty years.

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