BOX Options Exchange LLC, owned by the Toronto Stock Exchange operator and seven brokers, hired Edward Boyle to oversee business development and strategy.
Boyle, 50, a former executive in charge of the U.S. options business at NYSE Euronext, will join Chicago-based BOX in January, he said by telephone. Automated trading firm Getco LLC hired him in early 2011 to manage its relationships with exchanges and work on business strategy. The company eliminated about 40 jobs in June including Boyle’s, a person with direct knowledge of the situation said at the time.
BOX, which executed 3.4 percent of U.S. equity options volume excluding index transactions last month, will consider initiatives including a second options exchange, new products geared toward institutional traders and changing its trading rules to attract more business, Anthony McCormick, chief executive officer of BOX, said in a phone interview. It may also consider selling stakes to brokers or financial firms, he said.
“We have to think about how to broaden our position in the marketplace and what we can do strategically to diversify,” McCormick said. Boyle will “be in the forefront of adjusting our position in the marketplace and how the exchange company develops,” he said. “We’re not going to sit back and just do what we’re doing even though we’re doing it well.”
Boyle reports to McCormick and will join Patty Kevin-Schuler in the business development group, BOX said in the announcement today. McCormick added that Boyle’s role at the company, which has about 35 employees, could increase.
“Exchanges are competing for order flow,” Andy Nybo, head of derivatives research at New York-based Tabb Group LLC, said in a phone interview. “BOX has been known for their aggressive price improvement auction and they’re looking to expand their market share. I expect them to expand their product set beyond what they’ve focused on in the past and move beyond the retail price-improvement platform they’ve offered for years.”
U.S. options volume is likely to decline from last year’s 4.56 billion cleared contracts. Trading rose 17 percent in 2011 over 2010’s volume, according to Chicago-based OCC, which clears and settles trades.
BOX, which began in 2004, became a registered exchange this year after earlier using the regulatory license of a market owned by Nasdaq OMX Group Inc. Nasdaq started the 10th U.S. options exchange, called Nasdaq OMX BX Options, in June. Nasdaq OMX has three U.S. options exchanges while NYSE Euronext and CBOE Holdings Inc. have two each.
“Most of our competitors have gone in that direction,” McCormick said about exchanges launching a second or even third market to offer users different rules for how orders are matched and the prices they pay to trade. “It’s something we’re going to review strategically.”
The International Securities Exchange, the first fully electronic options exchange in the U.S., is considering plans for another venue, Chief Executive Officer Gary Katz said in an interview in March. Miami International Holdings Inc. plans to add its own options venue, Shelly Brown, a senior vice president at the Princeton, New Jersey-based firm, said last year. The SEC hasn’t yet approved the MIAX exchange.
Among products BOX may consider trading is a larger-size contract for options on the SPDR S&P 500 ETF Trust, an exchange-traded fund based on the Standard & Poor’s 500 Index. Instead of the contract reflecting 100 shares of the underlying product, it could represent 1,000 shares, McCormick said. The exchange would need regulatory approval for the contract.
BOX may also consider new contracts such as volatility products based on individual stocks, he said.
“There’s plenty of things that are going to happen in the next six months to one year that Ed’s going to sink his teeth into for us,” McCormick said. “While it will be a change for us and it will be broadening our horizons, it won’t be at the expense of what we’re emphasizing now, which is retail customer price improvement.”
The exchange improved the prices on trades beyond what was publicly available on a daily average of 205,000 contracts in November, the company said. BOX has saved investors more than $409 million since 2004, it said.
BOX is considering “strategic changes” to improve its price improvement system, the industry’s first effort to give retail investors better prices through brief automated auctions, McCormick said. It also plans to release a so-called complex order book, which allows users to conduct trades with several parts, or legs, he said.
TMX Group Inc., which owns 53.8 percent of parent company BOX Holdings Group LLC, said earlier this year it would limit its equity stake in the self-regulatory organization, the entity registered with the U.S. Securities and Exchange Commission that operates BOX, to 40 percent and its voting share to 20 percent. Interactive Brokers would have 20 percent of BOX Holdings, the document said. Citadel, Citigroup Inc., UBS AG and Credit Suisse Group AG would each own between 3.99 percent and 4.2 percent.
BOX’s share of total U.S. options volume, including index trading, is 3 percent, according to OCC. C2 Options Exchange, a venue run by CBOE Holdings, and Nasdaq OMX’s newest market are smaller than BOX.
McCormick said he doesn’t see an initial public offering “anytime on the near-term horizon.” A realignment of the exchange’s owners would need to occur first even if that were considered, he said.