The Chicago Board Options Exchange (CBOE) is the primary exchange where most listed options trade. The CBOE is also a self-regulatory organization (SRO), meaning it has regulatory authority over the options market.
The CBOE’s market structure combines features of the NYSE and NASDAQ. Similar to a DMM, the Designated Primary Market Maker (DPM) is responsible for maintaining a fair and orderly market. Depending on market conditions, the DPM may act in an agency or principal capacity. The DPM is hired by the CBOE to perform these duties, just as DMMs are hired by the NYSE.
In addition to the DPM, dozens of private market makers provide additional liquidity in the options market. These firms act only in a principal capacity by buying options for, or selling options from, their own inventory.
Floor brokers also operate on the CBOE and function similarly to floor brokers on the NYSE. They represent customers of financial firms and typically handle larger options orders. A floor broker can execute a trade with the DPM, a market maker, or another floor broker.
The CBOE enforces many rules designed to keep the market fair for all participants. These topics were covered in the Options chapter. In particular, it’s important to know the CBOE enforces these rules:
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