US Options Exchanges Debut Penny Quoting Pilot

by Philip Morton, Investors Offshore.com

30 January 2007

The US Securities and Exchange Commission on Friday announced that six options exchanges had begun quoting certain options on Whole Food Market, Inc. (WFMI) in pennies. This important move marks the first time options were quoted in penny increments, and represents the beginning of a six-month pilot in which a series of 13 options classes will be quoted in pennies.

“While stocks have been quoted in pennies since 2001, options currently are quoted in nickels and dimes,” explained SEC Chairman Christopher Cox. “Quoting in penny increments has the potential to permit investors to trade options at better prices.”

Last summer, Chairman Cox urged each of the options exchanges to begin quoting a limited number of options in pennies by Jan. 29, 2007. “I thank the options exchanges and their members for putting in the work necessary to prepare for Friday’s milestone,” he said.

The 13 options classes included in the penny pilot program represent a diverse group of options with varied trading characteristics.

The Commission expects the penny quoting in these classes during the pilot to provide it and market participants with valuable information about the impact of pennies on spreads, transaction costs, payment for order flow, and quote message traffic. The knowledge acquired during the pilot will be essential to the Commission’s future decisions regarding penny quoting in options.

The exchanges will roll out the remainder of the 13 options classes in the pilot program over the following two weeks.

Friday, Feb. 2, 2007:

• General Electric Company
• Microsoft Corporation

Feb. 9, 2007:

• Agilent Technologies, Inc.
• Advanced Micro Devices, Inc.
• Caterpiller Inc.
• Flextronics International Ltd.
• Ishares Russell 2000 Index
• Intel Corporation
• NASDAQ-100 Trust Shares
• Semiconductor HDLRs
• Sun Microsystems, Inc.
• Texas Instruments Incorporated

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