ISE Computes XMI Value Before Big Board Opens

Where is the primary market for U.S. equities before the New York Stock Exchange opens?

This question is of great interest to traders on the European Options Exchange in Amsterdam, where options on the Major Market Index debuted last week. The EOE began trading options on the index of 20 U.S. blue-chips under an agreement with the American Stock Exchange.

Because the contract listed in Amsterdam is identical to the one on the Amex, investors can open a position on one exchange and close it on the other, with all contracts cleared through the Options Clearing Corp.

Although the Amex trades options on the Major Market Index, all of the equities underlying the contract are NYSE- listed. During the NYSE's trading day, the Amex calculates XMI's value using last-sale prices from the Big Board.

But the EOE is trading XMI options from noon to 4:30 p.m. in Amsterdam, which corresponds to 6:00 to 10:30 a.m. EDT. For an option to succeed, it needs reliable pricing for the underlying instruments, so the Amex and the EOE recruited the International Stock Exchange of London to compute XMI until the NYSE opens.

But the Amex stopped short of designating the ISE's XMI price as the official value during the three-and-a-half hours before the NYSE's opening bell.

"Although SEAQ International's prices are the most readily available, a number of different trading entities and systems have emerged in international securities," says Paul Stevens, Amex executive vice president. "Which indication of the XMI price that traders choose to use is not something we're going to dictate."

Prices for the index and its component stocks are available through SEAQ International (see related article, this issue), the ISE's own Topic network, and other quote vendors, including Bridge Data and Reuters. Each is free to display the XMI data in any manner it likes, says Tudor Morgan, New York branch manager at Topic Services Inc.

While most vendors are expected simply to disseminate SEAQ International's value, they can compute a different XMI price as long as they don't do it using SEAQ quotes. This leaves the door open for firms lire Reuters and Instinet to compute their own values with their own data.

In the U.S., there's no doubt that the NYSE is the primary market for the XMI stocks, but in Europe no one exchange or vendor controls all the trading in these issues. For instance, says Stevens, Morgan Stanley & Co. told the Amex that it wants to make a market in the basket of 20 XMI blue- chips. Bear Stearns & Co. and Salomon Brothers are also said to be studying the issue.