The Nasdaq Stock Market said Thursday it plans to enter the crowded options-trading business with the creation of an equity and index options market.
Nasdaq said in a statement that it hopes to capitalize on its December acquisition of the Inet electronic trading platform as well a regulatory push for options to trade in increments of pennies instead of nickels and dimes.
Nasdaq plans to introduce the automated market in the third quarter of 2007 pending approval from the Securities and Exchange Commission.
Trading options in pennies would require enormous amounts of computing capacity so the SEC has called on the six options exchanges to test the quoting of some options in pennies starting next year. The SEC sees trading in pennies as a way to boost liquidity.
“The options market is on the verge of a transformative change, driven by the SEC’s call for quotes in increments of pennies versus nickels,” Chris Concannon, Nasdaq’s executive vice president, said in the statement, referring to a switch to quoting options in pennies.
Nasdaq, which has long focused on equities, waded into the options world in April when it began connecting and routing orders to options exchanges. The stock market said it would continue to offer routing to competing exchanges.
Aside from taking on options heavyweights such as the Chicago Board Options Exchange, the country’s largest options exchange, Nasdaq could also compete with the New York Stock Exchange, which offers options trading through its NYSE Arca arm.
Nasdaq has been moving its equity trading operations to Inet, whose electronic trade-matching system is considered superior to that of Nasdaq. The stock market said it would use the same technology for its options market.
