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OCC Steps in, Nixes CME Options

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CHICAGO (–The Options Clearing Corp. called a halt to the Chicago Board Options Exchange’s plan to list options of Chicago Mercantile Exchange Holdings Inc.

The CBOE’s announcement May 30 seemed to represent a prominent milestone in the ongoing transformation of derivatives exchanges from clubs to publicly listed corporations. CME Holdings is the parent company of Chicago Mercantile Exchange Inc., the largest futures exchange in the United States based on notional value, trading volume and open interest.

CBOE’s statement said it was pleased to become the first U.S. exchange to list stock options on another exchange. CME options were to begin trading June 2 for the March expiration cycle, with a position limit of 22,500 contracts.

But it didn’t happen or, at least, hasn’t happened yet. CBOE’s competitor, the International Securities Exchange, New York, protested the CME options to the Options Clearing Corp., which considers a stock eligible for an options listing only if it meets minimum standards in average daily volume, number of shares traded and other criteria.

The ISE and the OCC each declined to comment on the incident for this story.

A spokesman for the CBOE expressed confidence that “we will be listing the CME at some point in the future.” The spokesman, Gary Compton, confirmed Tuesday that “there was a miscalculation in terms of determining its specific eligibility.”

ISE/CBOE Rivalry

This incident could be regarded as the latest twist in a continuing rivalry between the CBOE, which invented the market for exchange-traded stock options 30 years ago, and the upstart ISE, founded in May 2000.

The ISE was the lead market in May for options on 23 of the 30 stocks in the Dow Jones Industrial Average, stocks representing 72% of that index’s total weighting. It was also the lead market for 219 of the stocks on the Standard and Poor’s 500 stock index, representing 62% of that index’s total weighting, and 279 of the stocks in the Russell 1000 or 58%. It was the largest U.S. equity options exchange in May for the fourth consecutive month, with a market share of 29%. Its market share in May 2002 was 21%.

The CBOE’s stock options volume in May rose 6% over April but was virtually unchanged from the volume in May 2002.

The CBOE’s growth in volume is taking place, rather, in the trading of options on indexes. The volume on the S&P 500 index was up 38% over the May 2002 volume. On the S&P 100, volume increase 7% from last May to this. On the Dow Jones Industrial Average contracts, volume increased 25%.

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