Options Exchanges To Go For The Gold

The Chicago Board Options Exchange, the International Securities Exchange and the Philadelphia Stock Exchange are planning to start trading options on streetTRACKS Gold Shares ETFs (GLD) next month, making their first foray into commodities. Options exchanges have been trying to convince the Securities and Exchange Commission to let them trade options on commodities such as gold, silver and oil for three years, but the regulator balked, citing unresolved regulatory overlap issues with the Commodity Futures Trading Commission.

Now that the two regulators have worked out a memorandum of understanding for regulating gold derivatives, options exchanges are anticipating a windfall from brokerages that have been clamoring for the offerings. The two regulators agreed on common guidelines for gold derivatives last week. "Options on gold ETFs are the single most requested product at brokerages and the regulatory uncertainty was preventing us from delivering. While it is unclear what the move means for other commodities, this is a great first step in providing legal certainty for the options," said Dan Carrigan, v.p. new product development with the Phlx.

According to State Street Global Advisors, assets invested in commodity ETFs made up $25.6 billion at the end of last year, up 90.3% from the year before. Retail investors typically hedge their bets with the options or speculate on the direction of the market. Before, only traders with futures accounts could have access to commodities hedges. CBOE and ISE officials said they have already applied to trade and anticipate approval. NYSE Arca officials declined to comment. Scott Morris, ceo of the Boston Options Exchange, said the market would joint the fray once the SEC signs off.

The SEC last month told options exchanges it would approve their proposals if they limited them to gold ETFs, sparking anxiety over whether they would be allowed to trade options on silver and oil later. "These are just the first products to come in under this new framework," an SEC spokesman said, noting that others would likely to come into the fold over the next few months. GLD alone would likely bring in more than $10 million in annual revenue per exchange, as the ETF trades more than 10.2 million shares a day. "There are not many people trading managed futures and ETFs in this area, but we have received quite a lot of interest from options traders," said Rich Gueren, executive director of options and transactional futures at Morgan Stanley.

Most traders see the recently-signed memorandum of understanding between the two regulators as the key issue for options exchanges, whose offerings have been delayed by regulatory squabbling. "They've been married for years; do they have to renew their vows every day? This is more of a business plan to start handling products that overlap," said Ron Ianieri, chief options strategist at Options University, an options education firm. --Veronica Belitski 

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