CBOE delaying new high-speed trading platform

The Chicago Board Options Exchange, the largest U.S. equity derivatives market, will wait until the second half of the year to start a new platform catering to high-speed traders while the Securities and Exchange Commission reviews industry practices.

The possibility that transactions known as flash orders may be barred in the stock and options markets has made it impossible for the Chicago-based company to complete trading rules for the C2 Options Exchange, Ed Tilly, vice chairman of the CBOE, said Jan. 7 in New York.

Criticism from U.S. Senators Chuck Schumer and Ted Kaufman as well as NYSE Euronext, operator of the New York Stock Exchange, helped prompt an SEC review last year of trading techniques used on some venues in the world's largest equity market. Flash orders, often called step-up orders in the options industry, enable brokers operating on one trading venue to match better prices available on other exchanges.

Without market makers maintaining the ability to "step up" to a better price available elsewhere, C2 might have to alter its algorithms that match buy and sell orders and change "incentives to get our market makers on top of the market," Tilly said.

CBOE and Eurex's New York-based International Securities Exchange, which together account for two-thirds of market volume in U.S. equity options, have told Congress and SEC commissioners that flash orders are necessary to compete for some business with newer exchanges such as NYSE Arca Options.

While the SEC proposed banning flash orders in September, a final decision hasn't been announced. The opportunity for the public to comment on its proposal ended on Nov. 23. Bill Brodsky, chairman and chief executive officer of the CBOE, said he expects the flash order issue to be "dealt with in the relatively near future."