The new all-electronic subsidiary will employ different trading mechanics to lure new types of trading firms.
The CBOE announced that C2 would have two critical differences from its parent exchange. It will match orders it receives based on a modified price/time matching algorithm. This will line up requests to buy and sell equity options in its trading book according to when the orders were received.
Orders would then be matched based on that ranking. This system differs from that employed by the CBOE, which employs an algorithm that is designed to attract quotes at the best price for a larger number of contracts.
C2 will also operate a maker-taker system of pricing, not so far employed by the CBOE. The CBOE said it would publish the fees to trade on C2 in early October.
CBOE expects to eventually list all of the industry’s multiply-listed, penny pilot options classes on C2. They will be rolled out in phases, the first of which is expected to include 25 to 50 multiply-listed classes over several weeks. Other rollouts should follow through to early 2011.
Any firm that wishes to be a market maker — one that can both stream quotes and submit orders into the C2 trade engine — will have to pay a fee of $5,000 a month, while firms that wish only to submit orders will have Electronic Access Permit status and will be charged $1,000 a month.
The CBOE said it had received applications from 12 firms for C2 membership.