Curtail small options exchanges that don’t grow: Nasdaq CEO

Robert Greifeld says market fragmentation adds costs

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Greifeld didn’t comment on whether his suggestion should apply to U.S. equities where there are 13 exchanges and a 14th is being planned. Nasdaq OMX’s slice of the 6.8 billion shares that changed hands daily in the first quarter was 21.4 percent across its three U.S. stock exchanges, according to data compiled by Barclays Plc.

The options industry should consider whether more exchanges are worth the costs they entail for participants, Joseph Gawronski, president and chief operating officer at New York- based Rosenblatt Securities Inc., said in an interview in New Orleans.

“Perhaps there should be some threshold of differentiation required before a new entrant is allowed into the plan,” Gawronski said. “Or maybe the exchanges should consider some type of arms treaty where each exchange group agrees to be limited to two exchanges.”

Most of Nasdaq OMX’s competitors in the options business disagreed with Greifeld’s suggestion to curb the contest between exchanges.

Competitor’s Response

“Market share is not the measure of a successful exchange,” Gary Katz, president and CEO of the International Securities Exchange, said in an interview. “I don’t support saying that an exchange cannot continue if it doesn’t reach what its competitors deem to be minimum thresholds. The exchange may be providing services that its customers consider valuable and it could be at a very low market-share threshold.”

ISE, the third-largest options exchange with 16.3 percent of equity derivatives volume, plans to introduce a second market by the end of this year.

Jeromee Johnson, head of the options venue run by Bats Global Markets Inc. in Lenexa, Kansas, and Anthony McCormick, CEO of Boston-based BOX Options Exchange, said in interviews that they didn’t support Greifeld’s approach. Bats Options claimed 3.1 percent market share in April and BOX had 3.9 percent, according to OCC.

“It strikes me as anti-competitive to say you have to reach a minimum market-share threshold or be dropped from the industry linkage plan,” McCormick said. “If you have a business model and want to bear the cost, the market will decide whether you last as an exchange. Who made him the decider?”

He added that “it’s disingenuous to talk about introducing market models that don’t add value,” referring to the proposed rules and pricing of Nasdaq OMX BX Options that are a similar to BOX’s.

“There has to be some finite limit in terms of the number of markets,” Greifeld said. “It can’t be infinite.”

Bloomberg News

--Editors: Michael P. Regan, Nick Baker

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