CBOE Holdings plans to move its SPXpm options contract from its all-electronic C2 exchange to its flagship Chicago Board Options Exchange on February 19. The move is expected to increase trading in the contract.
“Pending regulatory approval, we will place it in the trading pit that trades the [flagship SPX contract] and the weekly,” Ed Tilly, CBOE’s president and chief operating officer, said during a recent press briefing. “Our customers will have access to the entire suite of SPX contracts in one location. They can access the terrific amount of liquidity that current traders access in the SPX and lean on the brokerage community active in that pit.”
SPXpm, a monthly “PM-settled” contract based on the Standard & Poor’s 500 Index, began trading on the C2 exchange in October 2011. The contract was expected to be a giant hit with traders because, for the first time, CBOE offered automated executions in an index option based on the S&P 500. Up to that point, trading in an S&P 500 product was limited to those traders standing in the pits at CBOE, trading the exchange’s flagship SPX option.
The SPXpm, whose value is based on the closing—and not the opening—prices of the underlying stocks, never caught on. CBOE executives believe that a competitor product, a weekly SPX contract that began trading electronically on the CBOE at around the same time, stole its thunder.
Roughly 6,000 SPXpm contracts trade at C2, on average, every day, according to CBOE data. That compares to about 100,000 SPX weekly contracts that trade at CBOE, on average, every day.
Trading in the weekly SPX contract—whose value is also derived from the closing prices of the S&P 500 stocks— was accessible electronically through the CBOE’s “hybrid” mechanism, that melded screen-based trading with its floor-based, open-outcry marketplace. The weekly contract “probably satisfied the desire for electronic access” to an SPX contract, Tilly said.
The SPXpm contract was C2’s showcase product. Its failure highlights C2’s relatively inconsequential standing in options trading. Launched in October 2010, and intended to compete against other new-style maker-taker options exchanges, the C2 has never gained more than about a half a percentage point of market share in trading of options contracts.
Still, CBOE officials say they are not giving up on the venue. “Without its premier product, we are still left with an alternative venue to test alternative pricing models and different algorithms,” Tilly told reporters. “That half percent market share is not where we want C2 to ultimately be, so we will change the pricing. We will change the algorithms.”
