Options exchanges need to come together to solve a potential problem for the industry if the Securities and Exchange Commission’s ‘limit up/limit down’ proposal goes into effect as written.
That’s according to Gary Katz, chief executive officer at the International Securities Exchange. "We need to develop a position that we can present to the SEC," he said at a press briefing on Tuesday.
The SEC’s Limit Up, Limit Down proposal, currently out for comment, would pause trading for 15 seconds in stocks that are spiking. Trading in the options associated with that stock would continue though. That is a risky situation for options market makers as it makes it hard for them to hedge.
Dealers have suggested two possible responses during that 15-second period, according to Katz: halt trading or widen their quotes. Katz said the latter suggestion would not appeal to customers.
An industry-wide solution is merited, the executive said. "We need to do something together," Katz said.
