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A bitter controversy has broken out in Paris over a curious event at the Paris Traded Options Market (Marcht des Options Negociables de Paris--Monep), one that has raised questions about the exchange's willingness to face up to certain structural problems.
On June 22, the Monep ended its trading day as usual at 5:00 pm and, after the customary 45-minute period for exercising options, it closed at the normal time of 5:45 pm. During this period, dealers decide whether to exercise their options on CAC 40 stocks at the price which has been fixed by the day's trading. Also, they buy or sell CAC 40 futures to create appropriate hedging positions.
But on this day, three members of the exchange, the options trading subsidiaries of BNP, Credit Lyonnais, and BZW, had contacted the exchange at 5:40 pm, saying that their computers weren't working and they hadn't been able to exercise the options they wished to. So the Monep made an unusual decision to reopen between 6:14 pm and 6:20 p pm to allow these three banks to exercise. Other members of the exchange were notified by a fax service run by the national telephone monopoly France Telecom. Clients of these members, regardless of the size of their position on the exchange, weren't notified at all.
The result, in the words of Alain Morice, president of Societe de Compensation des Marches Conditionnels (SCMC), the organization that runs the Monep, "aroused some criticism." Morice will not be drawn into discussion, but he wrote a letter to exchange members...