3D MARKETS TO OFFER CBOE GWAP OPTION BENCHMARK TRADES

Posted May 21, 2008

CHICAGO -- The Chicago Board Options Exchange (CBOE) will introduce institutionally oriented “benchmark-priced trades” through the Archangel trading software offered by block options crossing network provider 3D Markets Inc., based in New Hope, Pa.

The CBOE will provide a regulatory framework for Archangel on option benchmark trades including Gamma Weighted Average Price (GWAP) auction and pricing methods, retaining proprietary ownership of that framework.

“This enables CBOE to accommodate the liquidity, pricing and anonymity needs of institutional customers in a way that has not previously existed in the listed options market,” says William J. Brodsky, Chairman and Chief Executive Officer of the CBOE.

The anonymous GWAP benchmark trades will enable CBOE members and customers to match large buy and sell options orders during a special matching session with the execution price determined at the end of the trading day using the GWAP pricing methodology.

“Institutions have become accustomed to relying on benchmarks like VWAP for everything from compliance and transaction cost analysis to algorithms and crossing,” says Jeromee Johnson, President of 3D Markets. “But due to the way options trade and their different market structure, VWAP doesn’t work. With those same institutions now coming to the options market in force, we’re thrilled to be partnered with the CBOE to meet demand for innovative products and efficient executions.”

The GWAP orders traded on the CBOE will be cleared and guaranteed by the Options Clearing Corporation, eliminating counterparty risk. “Institutions often have large orders that can be difficult and time consuming to execute,” says Ed Provost, Executive Vice President of Business Development at the CBOE. “The GWAP trading process will help institutions avoid the market impact associated with the execution of large orders and eliminate the counterparty risk associated with the OTC market.”