'Jumbo' SPY options make debut, but liquidity a concern to some

Fri May 10, 2013 5:06pm EDT
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* BOX Options Exchange lists jumbo options on S&P 500 ETF

* ISE believes product could potentially harm liquidity

* BOX says marketplace to dictate if product is accepted

By Doris Frankel

May 10 (Reuters) - A new "jumbo" option contract on the popular S&P 500 tracking ETF debuted on the BOX Options Exchange on Friday, but at least one rival has opted not to list the product for now because of concerns it will hurt liquidity in existing options on the fund.

The new product, known as the Jumbo SPY Options, is ten times the size of a traditional options contract on the fund, and is designed for institutional investors who prefer larger-sized contracts when executing their strategies.

Its introduction comes at a time when competing exchanges are trying to innovate and meet the demand of their customers.

"There are 11 option exchanges competing for order flow and innovation is the lifeblood of their future growth," said Andy Nybo, head of derivatives at research firm TABB Group.

BOX received the go-ahead from the U.S. Securities and Exchange Commission this week to trade the Jumbo SPY contract. Other option venues can list the contract after submitting a rule filing to the Securities and Exchange Commission.   Continued...