Competition and Technology

By Ramesh Akkineni

from an article in Financial Express

Technology has transformed the nation’s options floors, long known for the frenzied cries, histrionic expressions and violent gestures traders use to consummate deals. These days, split-second computer algorithms and mouse clicks have supplanted most of that in-your-face bartering, draining much of the hyperkinetic bustle from the nation’s six options exchanges.

For those who are staying, business has gotten a lot tougher. Computers are part of a series of changes that have narrowed the gap between the prices at which contracts are bought and sold, squeezing profit margins. Among the developments that have contributed to a decline from the hefty paychecks of the 1990s are broader competition and government rules that require clear information on trading costs. In addition, the increments in which options prices are quoted have narrowed, which has compressed the spreads between the prices brokers pay for contracts and what they sell them for.

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