Spider Webs

On Jan. 11, executives from the nation's six options exchanges trekked to Washington, D.C., for their annual meeting with the SEC. The next day, Dale Carlson, vice president for corporate affairs at the Pacific Exchange (PCX), gave everyone a little comic relief when he passed out buttons that read, "Free the SPX."

The red and white buttons refer to the index options contract based on the Standard & Poor's 500, known as SPX, that is traded exclusively on the Chicago Board Options Exchange (CBOE) under a 20-year-plus license with Standard & Poor's Corp. Two years ago, the International Securities Exchange (ISE), the all-electronic options marketplace, petitioned the SEC to break the exclusive arrangement.

Though the SEC has not yet acted on the ISE's petition, the ISE helped break another logjam with its plan to introduce a contract based on Spiders - the popular exchange-traded fund (ETF) that tracks the S&P 500 index. While the SPX index option settles into cash based on the index price - so that at expiration, the trader receives cash in its account - options on Spiders settle into the Spider ETF, which trades like a stock on the AMEX. When the Spider expires, the trader gets a share of the ETF, which settles into stocks. Last year, the U.S. Department of Justice opened an investigation into why there are no options on Spiders and reportedly requested documents from the American Stock Exchange and CBOE. (Spiders were created by the AMEX under a license with Standard & Poor's.)

On Jan. 6, McGraw Hill, parent of Standard & Poor's, obtained a temporary restraining order to block the ISE from trading Spiders without a license. The next day, S&P offered a provisional 90-day license to each of the options exchanges. "We secured a license from S&P Friday, Jan. 7, at 6:10 p.m.," notes Dan Carrigan, VP, new products, Philadelphia Stock Exchange. On Jan. 10, all six options exchanges began trading options on Spiders.

But the PCX's Carlson doesn't think the battle to free the SPX is over. "We still have the issue of monopoly trading of index options," he says. "We want the SEC to act on ISE's petition and break that monopoly." Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio