For the first time in the options industry, the PHLX's program permits broker-dealers to access the specialist limit order book, greatly expanding order-execution opportunities for investors and professional traders. Broker-dealers, which include market makers at competing exchanges, have previously been unable to access the limit order book unless they engaged a floor broker, and even then those orders were not eligible for automatic executions. The PHLX expects that its new program will increase the efficiency in the options market by exposing orders residing in the limit order book to more order flow, which should result in more execution opportunities for booked orders.
"The walls that separate customers, broker-dealers, market makers and specialists are coming down and they are being replaced by high-speed, precision trading systems that are erasing historical distinctions between order types,'' said Meyer S. Frucher, the PHLX's chairman and chief executive officer.
Broker-dealers can participate in the PHLX's new program by routing their orders through AUTOM, the Exchange's order-routing and delivery system, and ultimately through the electronic network now being developed to link all options exchanges.
All of the PHLX's 1,200 options classes will accept delivery of broker-dealer orders. During the program's first phase, automatic executions of broker-dealer orders will be offered by Timber Hill LLC, a division of the Interactive Brokers Group, and SLK Hull Derivatives. SLK Hull Derivatives will guarantee automatic execution in AT&T Corp. (T), Citigroup (C), Dell Computer Corp. (DLQ), Lucent Technologies Inc. (LU), SBC Communications Inc. (SBC), and Sprint Corp. (FON). Timber Hill will guarantee automatic execution in all of its options classes including up to 100 contracts in Bell South Corp. (BLS), Ford Motor Co. (F), General Electric Co. (GE), Intel Corp. (INTC), J.P. Morgan Chase & Co. (JPM), and Motorola Inc. (MOT). Auto execution means that broker-dealers who send orders to those eligible options classes will receive instant order executions, a level of efficiency historically reserved for retail investors. The Securities and Exchange Commission approved the PHLX's broker-dealer order flow initiative on Thursday as a six-month pilot program.
The Philadelphia Stock Exchange was founded in 1790. The PHLX trades nearly 2,220 stocks, over 1,200 equity options, 13 sectors index options and currency options. For more information about the PHLX and its products, visit www.phlx.com.
