CFA and an Advanced Trading reader, Bud Haslett of Miller Tabak & Co., emailed me the following commentary. I'd like to ask our readers the question he asked me: Do you think the
merger will result in narrower spreads and increased option volume for the combined organization?

Below is Bud's commentary:

Impact of Toronto and Montreal Exchange Merger On Derivatives Trading in Canada

In August of 1999, a CBOE firm began trading options on Dell Computer that previously traded only on the Philadelphia Exchange (PHLX). This resulted in "all hell breaking loose" and a multiple listing war that ultimately led to most active issues trading on all US option exchanges. The resulting competition between the exchanges led to narrower bid/offer spreads and an explosion in US option trading volume.

During the same year (1999), the Toronto and Montreal exchanges split functions with cash equities trading in Toronto and derivatives trading in Montreal. This agreement was to last for 10 years, finally ending in March of 2009, when the exchanges could trade both types of instruments.

It was my feeling that when the Canadian markets experienced multiple listing in options, this too would lead to narrower bid/offer spreads and an exposion in option trading volume for both exchanges (just like it did in the US). We will now, however, never know the impact of multiple listing as the exchanges announced a merger where they will join forces to form the TMX Group. Derivatives trading will remain in Montreal and the exchanges will be able to achieve various efficiencies from the combination.

The Montreal Exchange has always done a great job with their derivatives program, but the liquidity providers usually have relatively wide bid/offer spreads that constrict option volume. Does anyone have any comments or opinions on whether the merger will result in narrower spreads and increased option volume for the combined organization?

This is a public forum. CMP Media and its affiliates are not responsible for and do not control what is posted herein. CMP Media makes no warranties or guarantees concerning any advice dispensed by its staff members or readers.

Community standards in the message center do not permit hate language, excessive profanity, or other patently offensive language. Please be aware that all information posted to this forum becomes the property of CMP Media LLC and may be edited and republished in print or electronic format as outlined in CMP Media's Terms of Service.

Important Note: The Message Center is NOT intended for commercial messages or solicitations of business.