Boston Wins Again

At the BOX there is no limit to the number of market-makers for any given security, and none take precedence or have rights over another. Orders are awarded strictly on price and time. The market-maker providing the best bid/ask can take the whole order; there's no need to divvy it up or give some to the specialist book. This is the basis for the BOX's motto of being a truly "flat and open" exchange. Indeed, many smaller firms such as Peak6, Parallax and PFTC all have carved out profitable niche-making markets in 30 to 40 of the less-active issues.

Bill McGowan, a managing director at InteractiveBrokers, believes the structure provides the "greatest competition and will result in the tightest markets," citing the fact that the BOX is now on the National Best Bid Offer (NBBO) nearly 91% of the time. Given today's technology, which makes keeping track of multiple markets and strikes relatively easy and instantaneous, it makes sense to allow as many people or firms as possible to compete for business. Indeed, the fact that other exchanges are starting to offer limited trading licenses that don't require membership and the ability to make markets remotely, seems to validate the BOX's model.

In my next column I'll look at how the BOX's decision to trade in pennies not only benefits customers, but may finally put an end to the controversial PFOF practice.

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