A 12th venue is also planned. The International Securities Exchange, which in 2000 became the first fully electronic U.S. options market, plans a second venue. Molly McGregor, a spokeswoman, said the New York-based company, owned by Deutsche Boerse AG in Frankfurt, hopes to introduce its new platform by the end of this year. The exchange must be approved by the SEC before it can start trading.
The Miami exchange must offer novel features to attract market makers and orders from brokers and asset managers already trading with the established venues, Andy Nybo, principal and head of derivatives at New York-based Tabb Group LLC, said in a telephone interview.
“Miami’s launch and other exchanges bringing new ways of trading provide a challenging environment for market makers to support the provision of liquidity across all of these exchanges,” Nybo said. “At some point the ability to provide liquidity will start to impact market makers and they simply will pick and choose when and where they provide liquidity and how they do it. It’s a tall order to have a presence over 10 or more exchanges.”
MIAX said it will consider some bids and offers from market makers to be “priority” quotes and others “non-priority” quotes. Priority quotes, which must meet specified requirements, would enable the market maker to gain precedence over certain orders willing to buy or sell contracts at the same price, the exchange said. The venue will allow three types of market makers and let them use multiple types of quotes, the application said.
MIAX will match some incoming option orders with bids or offers based on who was the first at a given price, called price-time priority. Other contracts will use a pro-rata system, where some firms will receive a bigger share of incoming trade requests. Adjustments to these methodologies, already employed on rival exchanges, will also be used, the company said.
“Simply tweaking a pricing model in a race to the bottom isn’t enough,” Nybo said. “They need to bring functionalities that improve current market practices.”
--Editors: Michael P. Regan, Lynn Thomasson