Open outcry trading far from on the ropes

By Ros Krasny

CHICAGO (Reuters) - The demise of open-outcry futures and options trading seemed inevitable a few years ago but several major U.S. exchanges retain a strong commitment to their trading floors.

Officials from the three big Chicago exchanges, in particular, lauded the evolution toward "hybrid" trading -- meshing open outcry and electronic -- at this week's Reuters Exchanges and Trading Summit in New York.

Perhaps the biggest challenge to floor trading has been in equity options, where the all-electronic International Securities Exchange ISE.N changed the paradigm in 2000, catching older exchanges flat-footed and climbing to the top of the market share heap.

But the Chicago Board Options Exchange, the oldest options market, fought back with a hybrid floor-screen trading system launched in 2003 that it says has created more market liquidity and depth by combining the best of both worlds.

CBOE Chief Executive William Brodsky said many customers -- especially institutional users with large, complex orders -- prefer to have actual humans to work through their orders. He does not see the demise of the open-auction model as long as the trading floor adds value.

"As we bought out the hybrid, firms have consolidated their people on our floor. If there is going to be a floor, it's going to be on the CBOE," he said.

CBOE's dual model has paid dividends, helping its share of total U.S. options volume top 33 percent in March and April versus 28.7 percent in November.

Meanwhile Neal Wolkoff, scrappy chief executive of the American Stock Exchange, said AMEX was looking to take order flow away from the electronic exchanges.

"Why do we have floor traders? The answer is that they bring value to what we do. The trading floor, if it didn't add value, would not exist."

U.S. FUTURES EXCHANGES GROW WITH DUAL TRADING

At this point most European and Asian futures exchanges are fully electronic, but being so is not necessarily an advantage, said Bernard Dan, chief executive of the Chicago Board of Trade

BOT.N.

"Having both venues, in my mind, is the advantage. What we try to focus on is that any order that comes to our marketplace deserves the privilege of having a market maker competing for that order," he said.

Although more than 90 percent of CBOT's financial futures trade on screens there are users that want, or need, brokers who can execute large or complex orders, Dan said.

"CBOT is a wholesale market for U.S. Treasuries. Our user profile is institutional and there is complexity associated with that order flow.  Continued...