The old P-coast lives

Nina Mehta on the coming shakeout among options exchanges in the U.S.

She sees two factors which give an advantage to the NYSE and the ISE: deep pockets and a scalable trading platform.

There are two reasons behind the NYSE threat, according to Perfumo. First, NYSE can afford to buy another exchange-and the CBOE is preparing to go public. And second, NYSE has a scalable trading platform, which allows for consolidation. Without a scalable electronic platform, consolidation makes little sense.

"Clearly, New York wants to increase its market share and may have to buy an exchange and merge it with the P-Coast," says Meyer ("Sandy") Frucher, chairman of the Philadelphia Stock Exchange. "If Nasdaq wants to get into the game, they will have to buy somebody as well."

Repetto calls NYSE Arca Options a "new competitor with deep funding." Its recent aggressive fee reductions for market makers are a sign of its ambition.

The old PCX trading floor in San Francisco once on it's last legs, is alive and well under the NYSE banner.

Checking yesterday's IBD, the NYSE Arca (PCX) trading volume was solid with about a twenty percent share among all the exchanges. They were number one in call volume, with 1.8 million contracts traded there out of 6.8 million total. That never happened in the old days.

Hustle and Flow

A briefing from cnn on the exchange wars:

That deal sparked a wave of consolidation -eat or get eaten. The name of the new game is volume: The more trades flowing through your electronic platform, the more revenue. Now the mega-exchanges are each trying to dominate its niche of global trading. The result will be monopolistic empires that keep adding complementary pieces. "The way I think about it," says S&P analyst Jason Willey, "it's a huge land grab."

The barriers to entry are high so this industry will give you few to choose from if you want to own a piece of it. It's all about the stodgy SRO's going public, being disassembled and rearranged; creative destruction.