What is the Boston Options Exchange (BOX)
The Boston Options Exchange (BOX) is a derivatives exchange that was established in 2002, and trading commenced in February 2004. The exchange started as a joint effort by the Montreal Exchange, Boston Stock Exchange, and Interactive Brokers Group to provide an alternative to existing options markets. Technical operations of the Boston Options Exchange (BOX) are handled by the TMX Group, which is now the parent company of the Montreal Exchange.
Breaking Down the Boston Options Exchange (BOX)
Boston Options Exchanges was the first options exchange to offer price improvement to traders through a process called PIP, which stands for Price Improvement Period. Although all investors can be "PIPed," the investor must have a broker that is willing and able to offer a facilitation trade. Because not all brokers offer this to their clients, some investors do not have access to the price improvement offered on the BOX.
BOX has continually tried to bring new innovation to the options market. In addition to PIP, the exchange also uses a price/time priority algorithm to match orders, with all participants treated equally.
BOX offers trading on more than 1,500 securities.
Additional Features of the Boston Options Exchange
BOX provides low-cost access, with participants not requiring an equity membership to trade on BOX. Participants are broker-dealers, who can then offer BOX trading to their clients.
Participants benefit from low-latency trades on an automated trading system. Market Makers provide liquidity in the various options.
Large traders, trading 500 contracts or more, can access block order auctions. These allow large orders to execute against other large orders, without affecting the regular bid and offer. This helps avoid erratic price swings, as a large order could significantly impact the bid or ask price if it is not matched to a similar sized block order.
BOX sends out the five best bids and offers on each option, with anonymity and transparency to its participants. Participants can also utilize complex orders for advanced strategies.
Participants can also tailor their risk management strategy by contacting BOX. Each firm can set their own risk parameters to meet their individual needs.
BOX provides options trading. Vanilla options, such as puts and calls, give the holder the right, but not the obligation to sell or buy (respectively) the underlying asset at a specified price, called the strike price, before the option expires. In their most basic functions, puts are used to hedge a long position or to speculate on the price decline of the underlying asset. Calls are used to speculate on the price rise of an underlying asset, or to hedge short positions.