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Boston Options Exchange Latest To Eliminate ETF-Trade Fees
Last update: 6/23/2009 4:56:23 PM

By Tennille Tracy
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--The Boston Options Exchange has decided to eliminate fees for trades involving three exchange-traded funds, hoping to attract more investors who want to buy and sell options on these products.

The Boston exchange, also known as BOX, represents the latest exchange to take steps to woo investors who trade these popular products, which have started to drive a huge amount of activity in the options market.

"This was targeted to improve customer volumes," said BOX Vice Chairman William Easley. "It's the main place we felt we were at a disadvantage.

But while the Boston exchange looks to cut fees, Nasdaq OMX Group (NDAQ) has decided to assess a new charge after several months in which it maintained a fee-free policy for popular options. These developments highlight the challenges of finding balance in a market has grown at a lightning speed in recent years.

The three ETFs on which the Boston exchange has eliminated so-called taker fees are the SPDR Trust Series I (SPY), the PowerShares QQQ Trust (QQQQ) and the iShares Russell 2000 Index Fund (IWM).

Collectively, these three funds fueled 16% of the option market's volume between January and the end of May, according to the Options Clearing Corp.

The Boston exchange's new fee policy goes into effect July 1. It follows a move in May by the International Securities Exchange to eliminate customer transaction fees for options on ETFs that were listed on multiple exchanges, as well as indexes.

In addition to the SPY and IWM, which the Boston exchange targeted, the action taken by the International Securities Exchange also covered the Financial Select Sector SPDR Fund (XLF), a hugely popular fund that tracks financial companies.

"This is a competitive move for us," said an ISE spokeswoman.

The ISE first adopted its so-called premium product fee in 2005, attempting to offset the costs of litigation associated with listing the products in the first place. The exchange never charged fees on the PowerShares QQQ Trust.

Until now, the Boston exchange charged a 30-cent taker fee to customers who "took" liquidity from the market - often retail and institutional investors, as opposed to market makers. In other words, an investor who wanted to buy 1,000 options contracts - conveying the right to buy or sell 100,000 shares of stock - could have incurred a $300 taker fee.

Several months ago, Nasdaq OMX elected not to charge taker fees to investors conducting trades on its Nasdaq Options Market exchange. Now, however, it is looking to assess a 20-cent taker fee for customers who buy and sell options that trade in penny increments. These types of options are among the most popular and liquid contracts, and should generate revenue for the exchange.

"We're continually trying to find the right pricing mechanism," said Thomas Wittman, president of Nasdaq OMX PHLX. "You can't continue to charge zero forever.

Pending approval from the U.S. Securities & Exchange Commission, Nasdaq is looking to adopt the new fees on July 1.

Despite these moves, the fees assessed by Nasdaq OMX will, in most cases, still be lower than those charged by the Boston Exchange.

-By Tennille Tracy, Dow Jones Newswires; 212-416-2183; [e-mail] (END) Dow Jones NewswiresJune 23, 2009 16:56 ET (20:56 GMT)