Wall Street & Technology: Blog: Lime Brokerage Acquires Stake in CBOE Stock Exchange

Lime Brokerage Acquires Stake in CBOE Stock Exchange

Lime Brokerage has acquired a minority stake in CBOE Stock Exchange, a subsidiary of the Chicago Board Options Exchange (CBOE). The investment was made on Jan. 3, although financial terms of the deal were not disclosed.

According to George Hessler, Lime’s EVP and head of strategy, there are two reasons why the investment makes sense. The first reason is that the CBSX has one of the protected quotes under Reg NMS which means that if Lime’s customer “To the extent that either our clients or other clients of CBSX post the best bid or offer in a given named, nobody can trade through them. We feel that that will lead to some growth in their numbers,” says Hessler.

The second reason is that CBOE options traders use cash equities to hedge their options positions. Since the CBSX has a relationship with the CBOE, Lime expects that over time, the CBSX would “benefit from the hedging of the flow from options traders into cash equities,” notes Hessler.

Lime, an agency broker, known for its low-latency trading technology, clearing and reporting services, is eyeing the growth potential of the CBSX because of its relationship with the CBOE, one of the top two U.S. equity options exchanges.

Since its launch on March 5, 2007 with twelve stocks, CBSX has traded over a billion shares in 10 months. The average daily trading volume in 2007 was 4.8 million shares and its crossing business grew to 100 million shares by December. Also, it established a CBSX stock desk on the CBOE trading floor.

Meanwhile, CBOE handled one-third of all industry volume in U.S. options. In 2007, CBOE’s market share in U.S. equity options was 25.7 percent in 2007, down slightly from 26.1 percent in 2006.

In a statement, Alistair Brown, Lime’s chief executive, said that Lime looks for unique pools of liquidity “CBSX offers a displayed and non-displayed market for Lime’s customers to provide liquidity for CBOE options traders’ hedging activity. We believe this market structure is good for our customers and CBOE’s option traders seeking to hedge their options positions,” stated Brown in the release.

This is not the first time that Lime has acquired a minority interest in the evolving U.S. equity market structure. Known for its low-latency electronic trading infrastructure, Lime was one of the early investors in BATS Trading, operator of BATS ECN. BATS coincidentally announced two new investors, Deutsche Bank and JPMorgan, earlier this week.

In the release, David Harris, CBSX’s CEO noted that “Not only is Lime among Nasdaq’s largest liquidity providers, but Lime has also demonstrated its ability to support the development of new market centers.”

Lime, whose clients are a collection of hedge funds, broker dealers, traditional asset managers and some professional traders, provides a platform for its clients to anonymously execute equities, futures and options transactions on multiple exchanges, ECNS and trading venues.

Posted by Ivy Schmerken at 02:03 PM

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