December 26, 2004
I have worked on the CBOE, in various jobs, for over 29 years.Most of my jobs have been on the brokerage side. I have been a broker in the SPX 500 pit for over ten years. I fill only non-electronic orders. My main objective over the years has been to get my customer the best fill possible. I think COATS harms my ability to do that.
In the SPX 500 pit sometimes I take the first offer or hit the first bid I hear. Those times are few. Most of the time I am going to give the marketmakers and the other brokers in the pit a chance to tighten the bid-ask. I need to do this quickly and loudly because the SPX 500 is a 1200 point index that can move dramatically at any given moment. I believe this is what our customers ask us for in the SPX pit.
The reasons I do not understand the need for or see the viability of COATS in a highly priced, actively traded index such as SPX 500 is that I believe it will harm customer orders in three ways. One, I believe that the possibility of a dramatic move of the index as an order is being systemitized is real in a quiet market and a certainity in a fast market. Secondly, the inability of other brokers to add better bids and offers to the marketplace will lessen the opportunities to get the best fill for any given order. Lastly, to my knowledge there has not been an issue with the current surveillance of orders in the SPX 500 pit, so if COATS is not successfully performed by the brokerage community there might be the perception that there are problems where none exist. I believe that perception will harm the open outcry system and the ability it gives for any given order to get the best price because Due Dillegence will make our ability to systemitize an order more important than the best representation of that order.