May 15, 2003
BY DAVID ROEDER Business Reporter
Backing away from principle for the sake of market share, the Chicago Board Options Exchange said Wednesday it will resume paying brokerages for orders starting June 1.
The legal kickbacks, called payment for order flow, have come under federal scrutiny as a practice that could hurt customer interests. But the Securities and Exchange Commission has declined to ban it.
Meanwhile, the nation's fastest-growing options exchange, an electronic market called the International Securities Ex-change, uses the payments. The exchange is hot on the CBOE's heels for No. 1 status in trading options on individual stocks.
The CBOE has urged the SEC to forbid the payments. But it bowed to the competition once before, approving a payment system in July 2000 and rescinding it in August 2001.
In a written statement, CBOE Chairman William Brodsky said the exchange remains opposed to the payments, but they are "often the deciding factor for brokerage firms routing orders.'' Without SEC action, "CBOE is compelled to implement a payment for order flow plan in order to remain competitive,'' he said.
The exchange will charge its market makers 40 cents a contract for orders from brokerages that accept the payments. That money then would be remitted to the brokerages.
Each option trading pit could scrap the plan in 90 days if its members don't like it, the CBOE said.
http://www.suntimes.com/output/business/cst-fin-cboe15.html
BY DAVID ROEDER Business Reporter
Backing away from principle for the sake of market share, the Chicago Board Options Exchange said Wednesday it will resume paying brokerages for orders starting June 1.
The legal kickbacks, called payment for order flow, have come under federal scrutiny as a practice that could hurt customer interests. But the Securities and Exchange Commission has declined to ban it.
Meanwhile, the nation's fastest-growing options exchange, an electronic market called the International Securities Ex-change, uses the payments. The exchange is hot on the CBOE's heels for No. 1 status in trading options on individual stocks.
The CBOE has urged the SEC to forbid the payments. But it bowed to the competition once before, approving a payment system in July 2000 and rescinding it in August 2001.
In a written statement, CBOE Chairman William Brodsky said the exchange remains opposed to the payments, but they are "often the deciding factor for brokerage firms routing orders.'' Without SEC action, "CBOE is compelled to implement a payment for order flow plan in order to remain competitive,'' he said.
The exchange will charge its market makers 40 cents a contract for orders from brokerages that accept the payments. That money then would be remitted to the brokerages.
Each option trading pit could scrap the plan in 90 days if its members don't like it, the CBOE said.
http://www.suntimes.com/output/business/cst-fin-cboe15.html