The Securities Industry Association, the main trade group for the brokerage business, Friday expressed concern about what some are calling an "options war" - the growing number of options that are being dually traded on both the Chicago Board Options Exchange and the American Stock Exchange.
SIA president Edward I. O'Brien called on the exchanges involved to "carefully reappraise what they are doing," claiming the proliferation of dual options trading represents a grab for business by the exchange professionals that is poising cost problems for brokers, fragmenting markets and providing no benefits for the public.
"What this all comes down to is that a limited number of professionals on the exchanges are, as a result of this dispute, trying to increase their share of the options business at the expense of the customers and firms that generate the business," O'Brien said.
Neither the Amex or the CBOE would publicly respond to the charges made by O'Brien.
The Securities and Exchange Commission, which regulates the securities industry, seems hardly to be upset by this development. Lee Picard, head of the SEC's division of market regulation, said the commission addressed this issue in April 1974 when it decided that it would not impede the right of one exchange to trade options listed on another exchange so long as there were standardized expiration dates, a common clearing mechanism and a common tape.
"We have not at this point deemed it appropriate to review earlier decisions," said Picard.
The Philadelphia Stock Exchange, which also trades options, last week said it would ask the SEC to order an end to dual trading in options but has not yet formally submitted this request.
An options contract gives the buyer the right to purchase 100 shares of an underlying stock for a preset price within a period before the option expries. Organized options trading has become probably the most successful and lucrative new investment vehicle of the last decade.
Until recently the CBOE and the Amex - the two major exchanges trading options - have stayed away from listing options in the stocks where the other is the primary market. The Pacific Stock Exchange last year introduced dual trading in several options that are listed on the other exchanges, but the PSE has not challenged the other market for real primacy in any of these options.
The options war, which Wall Street professionals increasingly see as a battle between the CBOE and the Amex to become the single dominant options market, began several weeks ago when the Amex announced it would begin trading options in National Semiconductor Corp., one of the most heavily traded CBOE options.
The CBOE retaliated by announcing it would list six options in which the Amex has been the primary market - Merrill Lynch, Digital Equipment, Disney, Burroughs, Tandy and duPont. (In addition, Merrill and Disney are also traded on the PSE, and Tandy on the Philadelphia Stock Exchange.)
Dual trading in all of these options began on Wednesday of last week. Volume has been much heavier than usual in each of these options, but sources say most of this involves member trading to inflate activity on the different exchanges to give them primacy, and that little if any has come from increased public participation.
The SIA's O'Brien said that his organization is not opposed to dual listing of options but wants to composite book - a centralized trading mechanism - to be in place first.
"A composite book would enable the buy side of the trade to occur on one exchange and the sell side on the other, thus creating true competition in the interest of the public," he said.