TMX mulls reducing stake in BOX

NEW YORK (Reuters) - Canadian exchange operator TMX Group Inc (X.TO) is considering reducing its majority stake in the Boston Options Exchange to help boost the option market's liquidity and market share, TMX's CEO said on Monday.

The all-electronic options market is jointly owned by TMX, operator of the Toronto Stock Exchange, and eight other shareholders, including broker dealers Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N) and Interactive Brokers Group (IBKR.O).

"We are interested in looking at redistributing some of the ownership to parties that will continue to add liquidity to BOX," TMX Chief Executive Thomas Kloet said at the Reuters Global Exchanges and Trading Summit in New York. TMX owns 53.8 percent of the Boston Options Exchange, or BOX.

"Our interest in participating in the U.S. equities options market is quite clear," Kloet said. "That said, we don't have to own 54 percent." TMX still wants a significant presence on the exchange and be the "core shareholder," he added.

Kloet noted TMX was interested in adding shareholders or allowing owners to boost their stakes in BOX -- a move that would bring more volume.

Wall Street firms and other providers of liquidity -- the availability of buy and sell orders in stocks or options -- have used their influence on exchanges, fueling a trend toward so-called remutualization, in which exchanges sell profit-sharing stakes in their trading platform.

For example, NYSE Euronext (NYX.N) plans to close the sale of up to 49 percent of its Amex Options market to outside firms by the second quarter this year, a move credited for boosting market share.

Its two options venues, Amex Options and NYSE Arca Options, holds a combined market share that puts it in second place with nearly one-quarter of the options volume this year, according to the Options Clearing Corp.

BOX has one of the smallest market shares of the eight U.S. option exchanges and is higher than the newest entrant BATS Options launched last month.

Last month it captured 2.11 percent of U.S. equity option volume, OCC data show.

BOX currently offers an indirect type of payment for order flow model in what Kloet termed a "taker-maker" structure combined with its Price Improvement Program called PIP.

PIP is an electronic auction model designed to guarantee customers a price better than the prevailing best price at the other U.S. option venues.

BOX was established in 2002 and launched trading in February 2004 as an alternative to the then-existing market models.

The option venue plans to file for its trading license with the U.S. Securities and Exchange Commission in the second quarter this year. It is currently regulated by Nasdaq OMX BX.

(Reporting by Doris Frankel; editing by Bernard Orr)