Chicago Board Options Exchange has reduced trading fee discounts to its liquidity providers--and some market makers think the cuts are just the beginning in light of the exchange's demutualization plans. As of this month, discounts to market makers, specialists and floor brokers will be capped at 20% if certain volume benchmarks are reached. Previously, CBOE would allow as much as a 30% discount on trading fees depending on volume. Other fees and discounts on certain high-volume products might be on the chopping block as well, a market maker speculated. William Brodsky, chairman and ceo, has said earlier this year that the exchange would be more cost-conscious as it converts to a for-profit structure. But results so far are mixed. While fee discounts were reduced this month, at the same time CBOE instituted caps on charges incurred for trading Mini Nasdaq-100 index options. Previously, only options on Dow Jones indexes, Standard & Poor's indexes and Nasdaq-100 indexes warranted fee caps at the CBOE. A spokeswoman said the exchange continually reviews fees but has no current plans to raise them. The new discounts work like this: If CBOE's daily volume exceeds 2.3 million contracts per day, discounts will be 10% on the standard rates--22 cents per contract for market makers and 12 cents for specialists; if volume exceeds 2.55 million per day, discounts will double to 20%. CBOE did not divulge previous volume benchmarks. This means market makers will pay 17.6 cents per transaction, up from 15.4 cents last month, while specialists will pay 9.6 cents, up from 8.4 cents in January. CBOE reached its volume benchmarks most of the months last year, and is frequently trading 2.3 million contracts daily this month.
