April 28, 2011
Having read the CBOE's response letter regarding the potential revival of the historical issues associated with pm-style cash settlement of listed index derivatives, I agree that the conditions today are vastly different from those that drove the transition to am-style settlement two decades ago. So different are the trading mechanisms and liquidity in today's equity markets that I believe it is time to reintroduce the pm-settlement.
The current system with multiple and competitive execution venues including enhanced automation in the market in general and especially in the closing processes should serve to mitigate the potential for the large "out of line" closing dislocations of that earlier era.
The general market desire for pm-settlement of major index derivatives is evident and should no longer be denied. Given that the proposed contract is a traditional "pilot", the marketplace and its regulators will have ample opportunity to monitor expiration phenomena as inevitable growth of concentrated open interest in spx-pm options and (surely soon to follow) futures evolves.
I believe it would be wise for all the related regulatory entities to watch this evolution closely with eyes that are expert in the history of these popular, desired, and powerful financial instruments.
Randall Mayne