ISE CEO urges move to penny options pricing

NEW YORK (Reuters) - The International Securities Exchange, the world's largest equities option exchange, is urging U.S. securities regulators to fully institute penny pricing in options, moving beyond the current pilot program, the ISE's chief executive said on Monday.

The U.S. options industry, under the mandate of the Securities and Exchange Commission, initiated the penny pilot program early last year with the intention of giving investors access to better prices.

"At this point I think we've leapfrogged the whole pilot process and it's time to move on and jump into pennies," CEO Gary Katz said at the Reuters Exchanges and Trading Summit. "I'd like to see it happening over the next year."

Katz called a move into penny increments from the current 5 cent and 10 cent ones "the biggest issue right now in the options market."

ISE, which was acquired last year by Germany's Deutsche Boerse (DB1Gn.DE: Quote, Profile, Research), and rival exchanges in March started offering an expanded list of options names trading in one-cent increments.

The products that are in the penny pilot cover about 65 percent of the average daily volume of the industry, Katz said.

"The question is are they going to continue for another year and analyze how the pilot has performed, will they make a decision sooner than that to change the direction and in fact what is the right direction for the exchanges," Katz said.

A move to complete penny pricing will, however, test a variety of participants including the exchanges, market makers and vendors in terms of the technology required in executing trades and handling information, he said.

"Ultimately, a transparent, fully displayed," everything-in-pennies market is a preferred approach over an opaque market place where you don't know where the true liquidity is," Katz said.

(Reporting by Dinesh Nair in Bangalore)