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Chicago options exchange disrupted by computer flaw

By George Gunset Tribune Staff Writer February 7, 2000 While a broken water main was causing some major problems in Chicago's financial district Monday, a few blocks away one of the city's major markets found itself figuratively treading water.

A software problem knocked the Chicago Board Options Exchange out of action for about 2 1/2 hours Monday morning, a glitch that takes on new significance now that customers can redirect most of their orders to three competing exchanges.

Since last summer the exchanges have been aggressively listing stock options that once traded exclusively on just one bourse--a move prompted by a federal antitrust investigation, the wishes of federal regulators and the threat of computerized competition.

"The CBOE lost some business, but it was only for a short period," said Paul Liang who heads PBL Partners, an investment firm that owns seats on all four U.S. options marts: CBOE, plus the Pacific, Philadelphia, and American stock exchanges.

Additional competitors are waiting in the wings. The all-electronic International Securities Exchange, backed by several online brokerage firms, is awaiting SEC approval to begin trading options on March 24. It initially will list options on 30 of the most widely-traded stocks.

And late last year, the Chicago Stock Exchange disclosed talks with Goldman Sachs & Co. on the possibility of forming an electronic options trading unit.

"Monday was a lighter trading day in the markets in any case, thank goodness," said Jon Najarian, president of Mercury Trading. "My guess is the CBOE probably lost 30 percent to 40 percent of its business for the day."

While customers could turn to others for trading options on individual stocks, Najarian said, they had no recourse but to wait until the CBOE reopened to trade its index options.

A CBOE spokesman said the exact cause of the software malfunction had not been pinpointed as of Monday afternoon. In trading Monday, Amex option volume reached 702,000 contracts, besting the CBOE's 642,000. Last year, the Amex said, it garnered 29 percent of the country's option volume while the CBOE led with 45 percent.

The CBOE said its average daily volume in January was a record 1.5 million contracts, topping December's 1.2 million.

-- Martin Thompson (, February 07, 2000

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