BM&FBOVESPA is issuing for public hearing the rules for the selection, accreditation and performance of equity option market makers. Comments and suggestions for stage 1 of the program to become equity option market makers - for stocks in OGX Petróleo e Gás Participações S.A. (OGXP3) and Itaú Unibanco Holding S.A. (ITUB4) - should be sent to BM&FBOVESPA by February 18, 2011. The rules for the competitive bidding process can be found at Circular Letter 003 2011 (of 01/28/2011) “Public Consultation: Notice of Public Hearing on the Competitive Bidding to Select Market Makers for Equity Options”. Click Here to access the page with the circular letters.
The competitive bidding process has been developed to select market makers for equity options on the stocks in ten companies (excluding Petrobras and Vale) and on the Ibovespa. The process should occur in four stages. In stage 1 there will be three institutions selected as market makers for options on OGX Petróleo e Gás Participações S.A. and on Itaú Unibanco Holding S.A.. In stage 2, the options are on BM&FBOVESPA S.A. and Usinas Siderúrgicas de Minas Gerais S.A.; in stage 3 they are on Banco Bradesco S.A. and Gerdau S.A.; and in stage 4 on Cia Siderúrgica Nacional, PDG Realty S.A. Empreendimentos e Participações and Cyrela Brazil Realty S.A. Empreendimentos e Participações.
It is important to emphasize that the bidding is individual, so that the candidate for Equity Options Market Maker who wants to compete for the two underlying assets in stage 1 should send two bids – one for options on OGXP3 and another for options on ITUB4. As a result of this, each of the underlying assets could have the same or different Market Makers, depending on the proposals that win in the bidding process.
The winners for each asset in this process will be the three bids with the lowest maximum volatility spread - which is the percentage based on the implicit bid/ask volatility of each option of each obligatory series of each expiration.
In the competitive bidding process to select equity options and Ibovespa options market makers, BM&FBOVESPA seeks to spread the range of options trading in the Bovespa segment to underlying assets other than Petrobras and Vale. In doing so it hopes to build on its outstanding position in the global market and to encourage longer terms to expiration. The Exchange is currently a world leader in equity options trading volume, according to the International Options Market Association.