Philadelphia exchange sees options floor closing

By Belinda Goldsmith

NEW YORK (Reuters) - The Philadelphia Stock Exchange's Chief Executive Meyer "Sandy" Frucher said on Tuesday he expects the exchange's options floor to close within the next couple of years as electronic trading takes over.

In January, the exchange said it planned to eliminate floor trading in equities and move to a fully automated platform by mid-year to conform with new U.S. market structure requirements designed to modernize trading.

Frucher, who is also chairman of the oldest U.S. securities market, said he expected that Philadelphia, the third largest of six U.S. options markets in recent months, would also close its options floor.

"Within two years or so is a reasonable time," Frucher told the Reuters Exchanges and Trading Summit in New York.

"There is still economic value and the economic value is derived from complex orders and special situations in which people still use brokers. But the brokerage function, which will not become obsolete, is also getting increasingly electronic."

Once a floor-based market, Frucher said 90 percent of the 216-year-old exchange's trading is now conducted electronically.

Its main business is trading options that give the right to buy and sell an underlying security or index at a predetermined price within a specified time period.

Frucher said the volume and quotes for options has increased significantly.

U.S. options volume grew by 107 percent since 2000, peaking in 2005 at 1.5 billion contracts, according to Options Clearing Corp. (OCC).

Frucher said the days when people went to a floor to find direction was ending, with electronic trading from a desk often providing more transparency.

"The floor is real estate now, a lot more than it is an auction market, because the people on the floor are interacting with the market electronically as well," he said.

"Rather than have to walk into a crowd, they will electronically enter a crowd."

He said people who did not keep up with the economic revolution would become obsolete but this would also provide opportunities for people to engage in the business with having to be tethered to a specific location.

"The electronics are really changing how the world is done," said Frucher.

The Philadelphia Stock Exchange, also know as the PHLX, currently has about 200 players left trading options in a floor auction environment.

The PHLX converted in 2004 into a for-profit entity from a member-owned organization and brought in investments from six major players in the securities industry to finance innovations and expand its product base.