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U.S. Securities and Exchange Commission

Options Exchanges Begin Penny Quoting Pilot

Similar Move for Stocks Has Meant Better Prices for Investors


Washington, D.C., Jan. 26, 2007 - The Securities and Exchange Commission announced that today the six options exchanges began quoting certain options on Whole Food Market, Inc. (WFMI) in pennies. This important move marks the first time options were quoted in penny increments and represents the beginning of a six-month pilot in which series of 13 options classes will be quoted in pennies.

“While stocks have been quoted in pennies since 2001, options currently are quoted in nickels and dimes,” said SEC Chairman Cox. “Quoting in penny increments has the potential to permit investors to trade options at better prices.”

Last summer, Chairman Cox urged each of the options exchanges to begin quoting a limited number of options in pennies by Jan. 29, 2007. “I thank the options exchanges and their members for putting in the work necessary to prepare for Friday’s milestone,” he said today.

The 13 options classes included in the penny pilot program represent a diverse group of options with varied trading characteristics. The Commission expects the penny quoting in these classes during the pilot to provide it and market participants with valuable information about the impact of pennies on spreads, transaction costs, payment for order flow, and quote message traffic. The knowledge acquired during the pilot will be essential to the Commission’s future decisions regarding penny quoting in options.

Prior to the pilot, none of the nation’s exchanges quoted options in pennies, although certain exchanges’ rules have permitted trading in penny increments at prices better than the public quote. During the penny pilot, options in the 13 pilot classes that are priced below $3.00 will be quoted in pennies; options priced $3.00 and above will be quoted in nickels. All options in the QQQQ will be quoted in pennies.

Each of the exchanges, and the Commission’s Office of Economic Analysis, will analyze the impact of penny pricing on market quality. In addition, because quoting options in pennies is likely to increase quote message traffic, each of the exchanges is implementing strategies designed to reduce the quotations disseminated and will evaluate the impact of penny quoting on quote messages.

The exchanges will roll out the remainder of the 13 options classes in the pilot program over the following two weeks.

  • Friday, Feb. 2, 2007:
    • General Electric Company (GE)
    • Microsoft Corporation (MSFT)
  • Feb. 9, 2007:
    • Agilent Technologies, Inc. (A)
    • Advanced Micro Devices, Inc. (AMD)
    • Caterpiller Inc. (CAT)
    • Flextronics International Ltd. (FLEX)
    • Ishares Russell 2000 Index (IWM)
    • Intel Corporation (INTC)
    • NASDAQ-100 Trust Shares (QQQQ)
    • Semiconductor HDLRs (SMH)
    • Sun Microsystems, Inc. (SUNW)
    • Texas Instruments Incorporated (TXN).

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Modified: 01/26/2007