BATS Launches U.S. Options Trading
February 26, 2010
BATS Global Markets went live Friday with the much-anticipated launch of its BATS Options exchange for trading options in U.S. equities.
BATS also became a participant of the Options Clearing Corp., the Chicago-based clearinghouse for U.S.-listed options. That means that the options contracts traded on BATS can be offset against the same options contracted traded on other U.S. options markets, resulting in efficiencies for OCC’s member.
BATS Options started trading in options on 18 underlying securities. The rollout of more than 6,400 underlying symbols will be completed by May 17th.
“We look forward to injecting competition into the U.S. options markets just as we have in U.S. and European equities with superior technology, pricing leadership and outstanding service,” said Joe Ratterman, CEO of BATS Global Markets and BATS Exchange in a statement.
As the owner of the fourth-largest U.S. stock trading venue, BATS received approval from the Securities and Exchange Commission to open the new options market last month.
BATS, owned by some of the world’s biggest banks, faces tough competition in a market where three exchanges – the Chicago Board Options Exchange; the International Securities Exchange and the former Philadelphia Stock Exchange, now called Nasdaq OMX Phlx dominate.
BATS Options operates with so-called price-time priority, in which orders at the best price are filled based on when they were received with the earliest executed first. Because the rules of the Bats platform are designed for an order-driven market it relies less on market makers to facilitate trading than the CBOE and the ISE, which run a so-called payment for order-flow system. That is a complicated price structure in which brokers are paid for routing orders to them.
BATS Options will pay a rebate of 20 cents a contract to firms who add liquidity while those withdrawing liquidity will be charged 30 cents a contract.
Such an across-the-board price structure differs from the tiered pricing structures at NYSE Euronext’s Arca platform and Nasdaq NOM platform, the two exchanges that run similar “maker-taker pricing systems.”
Options traders say that Arca in general has higher fees and rebates than BATS; it has a fee-rebate spread of 15 cents to 20 cents depending on the type of customer. A market maker on Arca pays a 45 cent fee and receives a 30 cent rebate. NOM also has a spread of 10 cents to 20 cents depending on the customer, the traders asy. A NOM market maker pays a 45 cent fee and receives a 25 cent rebate.
