Flash Trading: The Simple Economics
CBOE Views on Flash Trading:
- Options customers should have choice of venue: Giving customers the choice of routing orders to destinations with different fee structures and market models improves market quality and directly benefits the public customer.
- Banning flash orders in options would harm investors by eliminating price improvement opportunities and increasing execution costs for public customers.
- Flash trading, as employed in the options arena, enables customers to benefit directly from the hyper-competitive nature of options trading.
- The options marketplace is different than the equities market. All stock exchanges employ "maker-taker" fee models, which charge all customers "taker" fees. Some options exchanges are maker-taker, while others (like CBOE) have "traditional" fee structures. Public customers are not charged transaction fees at CBOE or other traditional exchanges.
- CBOE's flash mechanism allows firms and their customers to obtain the National Best Bid/Offer (NBBO) on "traditional" exchanges like CBOE, thereby avoiding the costly "taker" fee when a "maker-taker" exchange is posting the NBBO. Thus, these competing models are good for customers.
- By forcing customers to pay taker fees when the NBBO is at a maker-taker exchange, the proposed ban on flash mechanisms, if applied to the options market, would inflate costs for those the ban seeks to protect - public customers - without providing additional investor safeguards.