Mike Babel currently heads new product development, research and competitive analysis involving market structure and exchange rules for the US...
Day 2 of the conference began with some opening remarks from Tom Wittman from NASDAQ OMX who then introduced Bob Greifeld the CEO of NASDAQ OMX who welcomed the attendees with a short speech that touched on a few things such as the theme of the conference (Renew, Rebuild, Reinvest), some industry volume trends, and one of the hot topics of this years conference - "what is the appropriate number of options exchanges?" With 9 options exchanges and expectations for as many as 3 more by this time next year, some industry participants, perhaps influenced by the proximity to the Superdome, were heard to mutter, "No Mas." In this regard, Bob Greifeld suggested that one possible solution to option exchange proliferation would be to consider a minimum market share threshold within a certain time frame from launch. Failure to achieve that market share threshold would then allow other exchanges to ignore their quotes for purposes of the Linkage Plan.
Next up was Zack Rosenburg of the St Bernard Project which began in 2006 and was created to help those who lost their homes as a result of hurricane Katrina rebuild their homes. There are still between 8,000 and 10,000 families with homes they cannot afford to rebuilt. The St Bernard Project has rebuilt approximately 430 homes so far - taking an average of just 61 days from start to finish. Later that day, a group of conference participants spent time at one of their rebuilding projects to help out with preparing the interior for paint by taping and spackling the sheetrock. Zack spoke of a few of the individuals he met shortly after Katrina that spurred him on to go ahead and create the St Bernard Project.
A perennial favorite, the Exchange Leaders Panel, was next up. Joe Gawronski from Rosenblatt Securities was the moderator. From the exchange side we had the following:
BATS: Jeromee Johnson
BOX: Tony McCormick
CBOE/C2: Ed Provost
ISE: Gary Katz
NOM/NASDAQ PHLX: Tom Wittman
NYSE Amex: Steve Crutchfield
NYSE Arca: Paul Finnegan
Joe kicked it off by asking if the recently announced new options exchanges (ISE launching a 2nd, NASDAQ launching a 3rd, and a new entrant the Miami International Exchange) could grow the pie or will they simply increase costs for existing market participants? Tom Wittman alluded to using their 3rd exchange to add transparency to payment for order flow. Tony McCormick followed up with a critique of Bob Greifeld's idea of requiring an exchange to maintain some de minimus market share in order to continue to have protected quotes under the Linkage Plan - in short he thought if an exchange could be profitable, irrespective of market share, then it should be able to exist. Steve Crutchfield commented about the relative ease in launching a new exchange but the difficulty in doing something innovative with it given the current regulatory environment. Gary Katz from ISE expanded a bit on the timing of their newly proposed exchange and pointed at their new technology platform as the enabling mechanism for pursuing this now rather than previously.
The discussion moved to the area of new product development and Ed Provost offered some thoughts on proprietary products vs. those that can be multiply traded. The discussion turned to the newly proposed mini options contracts that were first filed by NYSE Arca and shortly followed by a filing from ISE. Both contemplate delivering 10 shares of stock upon exercise or assignment vs. the normal 100 share deliverable but differ in other key aspects including selection criteria, strike setting, and premium multiplier. The general consensus seemed to be that it was important for there to be conformity amongst the 2 proposals as being in the best interests of the industry - to which both Paul from NYSE Arca and Gary from ISE seemed amenable.
Following a short bit by Ed Provost on FLEX options as a means of attracting OTC derivative business, the conversation turned towards the ISE Max SPY filing. Ed Provost stated unequivocally that ISE Max SPY, "will not trade" - naturally Gary Katz from ISE had a slightly different take. Steve Crutchfield from NYSE Amex used this opening to make mention of a recent NYSE Amex filing to eliminate position limits in regular SPY options so they will be treated consistently with the existing SPX, SPXPM, and newly proposed ISE Max SPY options which have no position limits.
A question/request came from an audience member asking about the potential for dark pools in options and the impact on quote competition. Gary from the ISE says we have that today on BOX due to the fees charged to auction respondents. Ed Provost followed up with a comment about the SEC approval of QCC as being indicative of the SEC's willingness to allow more dark trading in options. Earlier, Paul Finnegan from NYSE Arca had taken a light jab at Gary asking, "wasn't QCC your answer to floor based trading, so why are you opening a 2nd exchange that might have a floor?"
In the end there was a fair amount of lively back and forth among the exchange leaders and while there was plenty of verbal sparring, no actual punches were thrown.
Next up was the Sullivan Award, which derives its' name from Joseph W. Sullivan, who played a very significant role in establishing the US listed options market in the early 1970's. This years Sullivan Award was presented by Wayne Luthringshausen, the Chairman of Board and CEO of The OCC. Wayne announced that this years winner is Ed Joyce, who retired as the President of the CBOE last year after a career that began their as a post coordinator on the trading floor in 1974. Accepting the award on behalf of Ed Joyce, was Bill Brodsky, current Chairman and CEO of CBOE. Bill read Ed's prepared remarks in which he let us know how much the award meant to him, particularly since he worked on many projects for Joe Sullivan in his time at CBOE. You can read the OIC announcement here: http://www.optionseducation.org/press_room/archive/2012/feb_23.html
Following up the Sullivan Award, participants were treated to a speech from Charlie Cook, who authors the newsletter "The Cook Political Report". He gave us an overview of what he sees presently going on in politics on the US during this election year. In short, this years election will be determined by independent voters. He sees Romney as becoming more centrist having all but secured the Republican nomination. At the same time, he sees President Obama's chances at re-election hinging on his President Jobs Approval ratings which are largely driven by the state of the economy. If the economy continues to improve and the jobless rate continues to decline his approval ratings should increase and with them the chances of winning re-election.
The final speaker of the day was John Hague from McGladrey and Pullen LLP. He gave attendees a very in depth review of the various rulemaking originating from Dodd-Frank, the SEC, the CFTC, and the PCAOB and the impact those rules would have on various industry participants such as Investment Advisors, Broker/Dealers, banks and the companies that audit them. This concluded day 2 of the 30th Annual Options Industry Conference.