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The Battle for Phila-Dell-Phia Begins

Three exchanges begin the struggle for Dell options orders.

OK, it's official. Chicago got a respectable piece of the action in



options Monday, winning a 37% market share on the first official day of trading.

But the options industry wants to know whether any exchange's piece of the action is for real.


Chicago Board Options Exchange

officially began trading Dell options after

abandoning a long-standing tacit agreement not to trade Dell and other "grandfathered" options that previously traded on only one exchange. (Dell's only home was the Philadelphia exchange).

After one day, total options traded in Dell equaled 159,318 contracts: PHLX came in first, retaining its majority market share spot, with 68,118 (43%); CBOE was second with 59,584 (37%) and the AMEX third with 31,616 (20%). "It took us four seconds to get through opening rotation and we executed 950 contracts in that time," said Lynn Howard Reed, a CBOE spokeswoman. She added that 50 market makers logged into the exchange's retail automatic execution system, known as RAES, and she estimated about 140 market makers were shoulder to shoulder in the crowd for the opening.

The questions arise, however, when something called "painting the tape," is suspected and it happens when traders stand next to each other in the pits and trade options back and forth, essentially for no profit, but simply to jack up the number of trades recorded to put a shine on volume.

Options exchanges want the public to see that the big orders are landing on their floor, but as in stocks, it's hard to tell where the orders are coming from. On Monday, all that mattered were the numbers.

Exchanges "other than the PHLX are getting a crack at doing what typically is huge volume in Dell," said John Brett, executive director of equities at

Warburg Dillon Read

in Stamford, Conn. He trades Dell on the PHLX. "All the exchanges want to paint the tape, put some volume on the boards today. And it looks like there's a lot of volume trading, but is it exchange-initiated or customer-initiated? You can't tell. The markets are going to be aggressive because they're fighting for market share."

The spreads, which at times narrowed to as little as 1/16, illustrated the competition. At midday, at-the-money September 45 calls in Dell were trading at a bid-ask of 1 13/16-1 7/8 ($181.25-$187.50) on the CBOE and 1 3/4-1 7/8 ($175-$187.50) in Philadelphia. The September 50 calls traded at a bid-ask of 3/8-7/16 ($37.50-$43.75) in Chicago and 7/16-1/2 ($43.75-$50) in Philadelphia.

"It was higher volume in Dell even than during any earnings," said one Dell options trader in Philadelphia, who had since taken up trading in

Johnson & Johnson


options, which the PHLX counterlisted after the initial Dell move from Chicago.

A statement from the PHLX wasn't immediately available, nor was one from the AMEX. A spokesman for the

Pacific Stock Exchange

, which has yet to list any other exchange's grandfathered options, said the West Coast exchange had no announcements.