Boston Stock Exchange CEO Ken Leibler, who started his career in options trading 22 years ago, is coming full circle. With the launch this month of the Boston Options Exchange, the BSE’s joint venture with the Montreal Exchange and five brokerage firms, Leibler is back in a business he helped pioneer in the 1970s -- first as founder of Lehman Brothers’ options department, then as one of the first employees of the American Stock Exchange’s options division (on his way to becoming Amex president from 1986 to 1990).
“What we’re doing reminds me a lot of the Amex in the early days,” says the 54-year-old Leibler, who has headed the BSE for three years. “The technology has changed quite a bit, and our market model is different, but the process of organizing an exchange is much the same, and the regulatory approval process hasn’t changed at all.”
That’s an understatement. The BSE, Montreal Exchange and Greenwich, Connecticutbased Interactive Brokers unveiled plans for their new high-tech options market, known as BOX, in February 2002; they quickly attracted investments from Citigroup, Credit Suisse First Boston, J.P. Morgan Chase and UBS and expected to be up and running by mid-2003. But the Securities and Exchange Commission didn’t approve the trading rules until last month, allowing plenty of time for the five incumbent options exchanges -- most vocally the Chicago Board Options Exchange and Philadelphia Stock Exchange -- to bash BOX in formal comment letters. The flash point: BOX’s allowance of a three-second price improvement period, during which brokers can internalize, or fill, their customers’ orders themselves rather than match them up with an external buyer or seller. “Approval of the PIP will lead the options markets into a place where internalization is the rule and fulfilling best-execution obligations is the exception,” complained CBOE chairman William Brodsky. Even the International Securities Exchange, which shook up the U.S. options market in 2000 when it introduced an all-electronic trading approach -- which BOX is now poised to challenge -- charged that BOX would “upset the current delicate balance of competitive interests.”
Leibler chalks the opposition up to “competitive hysteria. Most of the negative comments came from the floor-based exchanges,” just as the Chicago-based futures exchanges had resisted Eurex’s all-electronic entry into their markets. “I don’t believe electronic markets will put the floors out of business,” says Leibler. “There’s room for multiple models. But we think we stand out because of our open platform. There are no barriers to entry, no specialists and no seats to buy, in a completely electronic auction with guaranteed price improvement and lowest-cost execution. It’s a 21st-century design.”
