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What Dell's Multiple Listings Really Mean

A CBOE market maker handicaps the new competitive environment.

The announcement of



options being listed on the

Chicago Board Options Exchange

is a major statement about the nature of competition in the options industry -- as well as a serious blow to the

Philadelphia Stock Exchange's

ability to compete in this environment.

While Philly's market makers certainly can't be dismissed as untalented, they are in an impossible position. Beginning Monday, they will have to compete against the largest options exchange and most technologically advanced floor in the country. They'll also be facing a tremendous number of highly talented and capitalized market makers and an exceptionally competitive primary market maker.

Don't dismiss the CBOE's listing of Dell options as some mundane high-finance rivalry. It may be the clearest illustration yet of an options exchange breaking from tradition to satisfy customer demand at the highest levels.

In the past, the CBOE has been asked, even begged, by retail and institutional brokerage firms to list Dell, mostly because they found Philly's systems and procedures made execution of Dell option orders a nightmare. (Philadelphia-listed Dell options now trade on an

American Stock Exchange

system left over from a failed attempt to merge the two exchanges.)

Brokerage firms and market makers appear to be getting fed up with the Philly exchange's Luddite tendencies. With the electronic

International Securities Exchange

expected to launch trading next year, no exchange can afford to let its technology lag. The CBOE has been making huge and rapid strides to bolster its position in automatic execution, screen-based initiatives and greater transparency. Elsewhere, political or financial concerns are, in many cases, hindering other exchanges' developments.

However, competition is the real test. The brokerage firms will tell us the true answer, and their order flow will express their position on who provides them with what they need in options pricing and easy problem resolution.

The Dell battle is the first major outburst in a long-brewing war among the options exchanges, and it could easily lead to the demise of at least one. It will be difficult for traders at all exchanges as they compete for order flow. The current exchanges must develop systems and procedures that keep the floor-based environment as the preferred destination for their customers' orders after the onset of electronic competition.

As a market maker at the CBOE, I am confident in the floor's ability to do just that. I expect CBOE members will prove me right in Dell.

Ross G. Kaminsky is the senior trader and managing member of Brave Sky Trading, a market maker firm which is a member of the CBOE and the Pacific Stock Exchange. The opinions expressed in this article are his alone.

TSC Options Forum aims to provide general securities information. Under no circumstances does the information in this column represent a recommendation to buy or sell securities.