More than a year after options exchanges began listing contracts that had belonged solely to one competitor, the
Securities and Exchange Commission
today sanctioned the four largest for anticompetitive conduct.
The SEC said the
Chicago Board Options Exchange
American Stock Exchange
Philadelphia Stock Exchange
had engaged in anticompetitive practices by "refraining from listing options already listed on another exchange." The regulator also ordered the exchanges to spend $77 million on surveillance and enforcement.
For years, options such on stocks such as
were traded only on one exchange. Competing exchanges thought trying to steal market share would be too expensive an endeavor and didn't attempt such plays until the U.S.
Department of Justice
and SEC began an investigation of the industry in 1998. (TSC wrote about the beginnings of multiple-listing as it
Critics of the old single-listed options tradition maintained that options listed on only one exchange traded at less favorable prices than those that were multiply-listed because the specialists and market makers had no incentive to keep spreads between the bid and ask prices narrow. Brokerage firms who were trying to get their clients orders executed had no choice of where to send orders.
The SEC also said certain exchanges rebuffed proposals by member firms to multiply list other exchanges' options and failed to satisfy their legal obligations in a few other areas.
Among which are the failure to enforce compliance of priority rules, which require a customer limit order be executed before other orders at the same or inferior prices; the firm quote rule which obligates specialists and market makers to trade a minimum number of contracts at quoted prices; and rules against the "harassment, intimidation, refusals to deal or retaliation that are meant to protect members of the exchange who seek to act competitively."
To remedy these situations, the Amex will spend $22 million, the CBOE $34 million, the Pacific $13 million and the Philadelphia $8 million during the next two years to improve systems and staffing for surveillance and investigations.
shares rose a slim 9/16 to 30 1/2, major volume gravitated to the telecom giant's call options.
More than 20,000 October 37 1/2 calls changed hands in morning trading. While the option's price rose 1/8 ($12.50) to 1/2 ($50) on the action, it may not be an overwhelming wave of optimism bringing investors to the party. The activity could be more likely a signal of a neutral feeling about the stock shown by call selling -- which investors use if they want to generate income against shares of WorldCom they already own.
The income would be generated by the 1/2 ($50) they get for selling each contract, cash which they keep if WorldCom shares don't hit 37 1/2 by the third Friday in October, when the options expire.
WorldCom shares have fallen about 35% since mid-July and more recently been meandering, making it a prime candidate for call sellers hoping to profit by taking in option premium.