Option Investor
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Linda Piazza : 9/20/2008 11:06:20 PM

After we learned first of the no-naked shorts rule and then the no-shorts-at-all in listed financials, I worried that the options market would suffer. I mentioned the need for options makers to offset the delta and other risks they were taking on, often by shorting stock, and worried what would happen if they weren't able to do so. Yesterday, I posted information a reader had found, responding to my comments, in which some market makers had said they would no longer be active in the options markets in those listed stocks, beginning Monday, confirming my fears. Here's the statement of the CBOE Chairman and CEO, issues yesterday: "The need for the policy intervention notwithstanding, it is difficult to comprehend the merits of a draconian measure that will result in the sudden and severe removal of liquidity from the marketplace at the same time that the government is taking unprecedented steps to preserve it. Investors rely on a deep and liquid options marketplace in which to safely hedge and to transfer risk in times of market turmoil, yet this action will severely compromise the ability of market makers to make markets. Liquidity in the affected stocks will suffer to the extend that market makers are hampered, and--absent relief--market makers will be hamstrung. The lack of relief for options market makers will have serious ramifications for the reliability of the options market and for the efficiency of our capital markets overall. We are especially concerned with the collateral damage to our customers, which, while unintended, will be no less serious," said William J. Brodsky, CBOE Chairman and CEO.

OI Technical Staff : 9/20/2008 9:59:59 PM

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