Monday, January 10, 2005

NY Times Reports: Derivative market contemplated by NYSE

The NY Times ran a story on 1/10/2005 titled, "
Cheap Seats Provide View of Troubles at Exchange". Here's a syndicated version of that story:

Highlights from this article (in case you're pressed for time):

(Keep in mind Arca's recent purchase of the Pacific Exchange's options business)
". . .Mr. Thain [the CEO of the NYSE] is offering new products, such as an exchange-traded basket of stocks of Chinese companies, and is contemplating ways to enter the derivatives and futures markets. . ."

Here's an excerpt from the NY Times article where the trading Pfizer on a heavy news day was halted on the NYSE while not missing a beat on ArcaEx:
On Dec. 17, at 9:20 a.m., Pfizer announced that Celebrex, one of its top-selling drugs, might increase the risk of heart attacks in users who take it for chronic pain. Hundreds of traders rushed to Thomas Shafir III, the auctioneer who manages the trading of Pfizer stock. For nearly an hour, the traders massed in front of Mr. Shafir, waiting to learn the opening price of the stock. By 10:09, Mr. Shafir declared that Pfizer would open at $23.52, down $5.26 from the previous day's close. Ultimately, he managed the trading of 202 million shares of Pfizer, worth more than $5 billion.

Still, electronic exchanges claim they can match the Big Board's performance. Archipelago, an all-electronic exchange based in Chicago, did not halt its Pfizer trading that day. Moreover, when the Big Board opened, ArcaEx, as the exchange is called, had already arrived at much the same price without using a specialist. "Being open and trading and allowing the market to discover the price is the key. When the market's not open, are you better off?" said Gerald Putnam, chief executive of Archipelago Holdings, the parent company of ArcaEx.

Thomas Peterffy, head of Interactive Brokers, an institutional trading firm, said hybrid models so far had been unsuccessful. "There has been an experiment on hybrid on the Chicago Board Options Exchange and I do not see it working well for the users, but it works well for the floor members," he said.

Fidelity Investments, one of the toughest critics of the model, is also skeptical. "The proof in the pudding in hybrid is whether it will eliminate the information advantage of the floor members that disadvantages institutional investors," said Eric Roiter, general counsel at Fidelity Investments.


Blogger amotleyfool said...


11:00 PM  

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