The Chicago Board Options Exchange plans to move its primary options trading platform East, from Chicago to New Jersey in Q4 of 2012.  The move is in response to competitive pressures and member demands.  Co-location is an obvious factor in the decision. When the Exchange has completed moving its matching engine to the Equinix NY4 IBX data center in Secaucus, NJ, CBOE will become the last major stock or options exchange to locate in a data center in the New York metropolitan area.  CBOE already houses its all-electronic C2 options exchange and its stock exchange at the facility in Secaucus.  The move later this year will also include CBOE's futures exchange and its OneChicago single stock futures exchange. Behind The Move. The move impacts only electronic trading on the exchange;  the floor of the exchange in Chicago will continue to be the site for the open outcry operation.  Aside from the geographic benefit, the move also will allow for "some enhanced technology offerings," according to CBOE. By reducing its members' latency, or the time it takes to trade or quote or receive market data, the move is expected to reduce trading costs for market makers and other high-end trading houses.  That includes those firms who maintain a server at the CBOE and those mainly New York-based firms that lease high-speed lines between New York and Chicago. "This makes trading cheaper for everybody," said Brian Donnelly, a managing member of New York-based options market maker Volant Trading.  "It doesn't matter where they're based."

All of the major firms, whether they are headquartered in New York or Chicago maintain execution engines in the New York metropolitan area.  That's because all of the major stock and options exchanges, except for CBOE, site their matching engines in the New York area.  The trading houses co-locate the execution engines with the exchanges' matching engines in order to cut down on latency.

For latency sensitive firms, it is imperative to co-locate alongside the matching engines.  That's especially true for options market makers that base their quotes on the prices of the underlying stocks and exchange-traded funds, and hedge in the stock market. Market makers on the CBOE can be at a disadvantage to those at the Int'l Securities Exchange (ISE), for example, as they can't update their quotes as quickly.  Because the securities industry's stock quotes are collected and published in New York, the CBOE must haul them the 800 miles out to Chicago. That may impact brokers' routing decisions.  If the CBOE quote is deemed to be lagging, a broker may pass over the exchange for one of the New York-based marketplaces. Ed Tilly, CBOE's president and COO, told journalists in January that a major reason for the move was to benefit those market makers using the stock quotes from the New York-based exchanges to price their merchandise.  "That proximity to the NYSE and Nasdaq is extremely important," Tilly said, "not so much for the ability to get into the market but rather the feedback of 'when am I out?'  The ability to know when you are off the market is equally important." The move is not expected to produce an exodus of firms or workers from Chicago to New York.  Because most trading is already done by machines located in New Jersey, there will be little need for traders to move from Chicago to New York.  There may be some redundancies among technical personnel in Chicago, however, as servers are moved from Chicago to New York.   [Traders Magazine, 4/5/12]