CBOE WINS REGULATORY APPROVAL FOR ‘TIED HEDGE’ PROCEDURES

Posted August 18, 2009

CHICAGO – The US Securities and Exchange Commission (SEC) has approved the Chicago Board Options Exchange (CBOE) application for an exception to its current rules restricting anticipatory hedging.

The CBOE’s new “tied hedge” procedures allow firms to obtain a related stock, security futures or futures hedge prior to presenting the tied-hedge order to CBOE’s open-outcry trading community for execution.

“CBOE is continually exploring ways to enhance the risk management experience for all of our market participants,” says William J. Brodsky, Chairman and CEO, CBOE. “In the last two years, we’ve introduced a number of ways for our customers to employ the type of flexibility found in the OTC market without having to sacrifice the benefits of exchange-traded trading, such as price and quote transparency, centralized clearing and the elimination of counterparty risk.”

The tied-hedge transaction procedures will be available in all options classes including FLexible EXchange (FLEX) options, and will also apply to complex orders. Member firms will be able to place hedge orders with a minimum size of 500 options contracts as long as they follow certain conditions.

“The ability to hedge prior to execution will enable firms to gain greater certainty in quoting and pricing their customers’ options orders,” says Ed Tilly, Executive Vice Chairman, CBOE. “As a result, CBOE’s new procedures will make it easier for firms to facilitate large-sized orders, and will also result in greater opportunities for price improvement for their customers.”