US options exchanges prepare to reopen trading floors

Traders will be allowed back on to the floors of two US options exchanges on Monday in a move that will test the industry’s appetite to return to workplaces after weeks of stay-at-home orders.

The New York Stock Exchange’s Arca options floor in San Francisco and the Box Options Exchange in Chicago will both open for business, albeit with fewer people and a series of precautions.

“We voluntarily shut down the San Francisco trading floor and are now reopening it in a limited fashion, with additional safeguards, to deliver the best possible outcomes for market participants,” said Michael Blaugrund, chief operating officer of the NYSE.

People working at the NYSE Arca floor in San Francisco’s financial district, for example, should avoid public transport and must be subject to a medical check on entering the building. They also have to wear masks, stay six feet away from others and agree to periodic testing. Anyone with coronavirus-like symptoms will be told to stay away.

The measures should help to indicate whether it is practical to reopen other trading floors, which remain a symbol of financial-market activity even though they typically account for only a small fraction of daily volumes on exchanges. CBOE Global Markets, which runs one of the world’s largest “open outcry” pits, said on Friday it intended to be ready to open on June 1.

“Everyone I’ve spoken with wants to get back to the trading floor,” said Albert Marquez, a Chicago-based options broker. “With the switch to electronic-only markets, volumes have dried up quite a bit,” he said. Trading has also become more expensive as the gaps between prices where traders are prepared to buy or sell have widened, he added. “Therefore it’s not just the people that work on the floor that want the pit to reopen, but the end users as well.”

Since the turn of the century many of these boisterous and colourful pits, immortalised in films such as Trading Places, have fallen silent as automation took over. A handful of floors in big trading hubs like London, New York and Chicago survive, but have been shut since late March because of the coronavirus pandemic.

Both Arca and Box, which is owned by Canada’s TMX Group and a group of broker-dealers, have been closed since March 23. These and other closures, particularly those at bigger exchanges, have reduced liquidity in complex options transactions involving the Vix volatility index or the S&P 500 index of US stocks, said Anthony Saliba, a former trader and chief executive of Matrix Execution Technologies, an options broker-dealer, in Chicago. 

“It’s been a hard six weeks. You have a real group [of institutions] that is harmed by a lack of open outcry. You need all the players playing,” he said.

He noted that the moves by NYSE Arca and Box — two relatively small floors — could provide a good guide to the feasibility of reopening more broadly. But he admitted his staff were divided. The older ones “think it’s much too soon”, he said, while others are “raring to go”.

Over the long term, it is unclear whether physical trading pits can survive in an age of electronic dealing. Ed Tilly, chief executive of CBOE, told analysts on Friday it would take a greater shift in behaviour by customers to prompt it to close its floors for good.

Paul Rowady, founder and director of Alphacution Research Conservatory, noted that historically, big Wall Street banks tended to rely on floor brokers to make markets in options. But many banks have now ceded market share to electronic rivals including Citadel Securities, Susquehanna Securities, Jane Street Options and Two Sigma Securities, he said.

The CME last week described the gradual transition from its Chicago floor, still home to hundreds of people, towards electronic trading, as “very healthy”, in part because of a new system that digitally replicates the experience of the floor. The $20m in annual costs to keep the floor open “are not extraordinary”, said chief executive Terry Duffy.

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