The Securities and Exchange Commission has approved a sixth options market, the Boston Stock Exchange's (BSE) electronic Boston Options Exchange (BOX), and its controversial price improvement feature, which will usher in decimalization in the nickel-moving options world.

"BOX has been approved with the three-second price improvement period, as filed," a BSE spokeswoman said.

The price improvement period (PIP) feature will also give more legitimacy to internalization, as it will allow brokers to trade against their customer orders, provided they can improve the price of orders entered into the PIP by at least one penny above the national best/bid offer (NBBO).

"BOX has removed typical barriers to entry by eliminating seats and specialists, creating a market that is open, inexpensive and easy to interact with," said BSE Chairman and CEO Ken Leibler.

BOX is a joint venture between the BSE, the Montreal Exchange and Interactive Brokers Group (IBG), the parent of Timber Hill, a major player in the options industry. BOX will run on the Montreal Exchange platform, based on Euronext's technology. BOX also attracted powerful investors, such as Credit Suisse First Boston, J.P. Morgan Chase & Co., Salomon Smith Barney and UBS.

"The PIP auction could save investors half-a-billion dollars annually," predicted IBG Chairman Thomas Peterffy.

BOX, a no barrier-of-entry, low-cost execution venue, promises to intensify competition in an already crowded field led by the Chicago Board Options Exchange (CBOE), which has exclusive rights to popular index products, and the International Securities Exchange (ISE), the first U.S. electronic options market.

The ISE's rapid rise to the top of the equity options field is a good omen for BOX, which will bank on its open-access model to build market share, as well as its three-second PIP feature that can only be accessed by BOX participants.

BOX's four floor-based competitors are aware of the competitive threat posed by the electronic market and are pushing hybrid models with remote specialists. The CBOE plans to roll out its second-phase CBOEdirect HyTS 2.0 later this year, while the Philadelphia Stock Exchange is developing a similar system, called PHLX XL, and the Pacific Exchange is pushing out PCX Plus.