Exchange Leader Jeopardy, Part Four
This is the fourth installment of the Options Insiderís coverage of the exchange leaderís panel from FIA Chicago.
To read part one, click here.
For part two, click here.
Part three is here.
We pick up where we left off...in the middle of the inaugural game of Exchange Jeopardy.
Tony McCormick chose options products for $30...the daily double! The question was: ìIs exclusivity important?î
Bill Brodsky answered with a question, ìWhat is the value of new product development to the industry?î. The answer, he went on to say, is yes. The value of putting money into research and development, marketing, and education. The ones putting the money into do that have the right to exclusivity.
Gary Katz agreed, saying exclusivity is important. He added that when the exchange, rather than the index provider, who holds the rights, it removes competition. Customers are hurt by a lack of competition. Index makers have the right to license an index, but not to just one exchange. He said he has no issue with exclusivity, but rather the issue is not giving customers a choice.
Brodsky responded that there are intellectual property issues. There are many other products available to customers who want to trade [something based on the S&P 500].
Nagy asked if rule 610 potentially cuts into it. Brodsky said that even if you look at the fee cap proposal, and accept one on multiple listed products, what do you do if there is a license fee? He said that there are enough products our there and people can decide which ones they choose to use.
Jeopardy answer: ìWhat is SPX?î
Brodsky chose next...Exchanges & Government for $50. The question was: ìShould the exchanges and the SEC focus on greater incentives for specialists to reward liquidity provision to the markets?î
Brodsky said that the SEC has to focus on the value of market making in light of the flash crash.
Nagy asked if it highlighted the need to provide incentives.
Katz said that the flash crash highlighted the fact that liquidity is not guaranteed, which came as a surprise. The marketplace assumed liquidity would always be there, regardless of what is happening.
McCormick added that you have to level the playing field between high frequency liquidity and dedicated liquidity. You will see dedicated liquidity leaving the exchanges as high frequency picks it off. He said there has to be more obligation and scrutiny on how high frequency interacts with the regulated marketplace.
Boyle said that you have to be careful with incentives. The SEC, he said, has to decide what it wants.
Jeopardy answer: ìWhat is 60/40?î
The final installment will include Maker / Taker for $30, the audience picks Flash Crash for $50, and Final Jeopardy. Good times.
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