Penny Pilot program set to expire on July 3, proposals to extend and expand to all ETF options classes
“The penny pilot program is an SEC initiative to quote a number of options classes in pennies, on a trial basis with only a limited number of options. The SEC intended the penny pricing initiative to help tighten price spreads, provide better prices to retail customers, and reduce payment for order flow.
The pilot program began in January 2007 when an initial 13 options classes started trading in penny increments. (Options not in the pilot trade in 5- or 10-cent increments.) The pilot was expanded in September 2007 to include 22 additional classes and again in March, when 28 more names were added, to ensure that the 50 most active options classes were included.” (definition from: marketswiki.com)
The pilot was originally set to expire in March 27, 2009, although this deadline was extended until July 3, 2009 back on March 11. (http://www.cboe.org/publish/InfoCir/IC09-020.pdf)
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The initial roll-out of the penny pilot program included two ETF’s, QQQQ (QQQ) and the Ishares Russell 2000 (IWM). The inclusion to this program resulted in a volume increase of 9.7 million contracts or 37% for QQQQ and an increase of 12.3 million contracts or 70% for IWM.
An indicator some consider a more appropriate measure of penny quoting is to examine the average number of quotes per day as this mitigates the impact of quotes due to series
that existed in one time period and not another. The impact on the two initial ETF’s also showed very positive results. IWM saw an increase of 12,801 quotes per day per series over the prior period rate of 10,975 or a jump of 117% in quote traffic to 23,777 quotes per day per series. QQQQ saw an increase of 13,235 quotes per day per series over the prior period rate of 13,159 or an increase of 100% in quote traffic to 26,393 quotes per day per series. The time period above data was taken from November 1, 2006 to January 31, 2007.
The Chicago Board Options Exchange has filed to extend and expand the penny pilot program in phases to ultimately include all equity and ETF options classes. We at ETF daily news fully support this expansion and look forward to the SEC’s approval.
Related:
http://www.sec.gov/rules/sro/cboe/2009/34-60018.pdf
http://www.sec.gov/comments/sr-nysearca-2009-44/nysearca200944-1.pdf
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Great idea, but will this work over the long run?