| NEW ORLEANS, Louisiana
NEW ORLEANS, Louisiana May 4 With nine
exchanges already battling for a piece of the U.S. options
market, as many as three new competitors this year may entry the
market this year.
The new entrants face the challenge of offering innovation
and better ways of managing option order flow, amid a decline in
U.S. options volumes, driven by subdued volatility. Volume is
down nearly 8 percent this year.
"If these exchanges launch, they would all be trying to
compete for order flow in a shrinking market place," said Andy
Nybo, head of derivatives research at TABB Group.
First in line is Nasdaq OMX Group Inc, which plans
to launch its third stock options trading venue next month, this
time targeting retail investors. The new exchange, called
Nasdaq OMX BX Options, is expected to launch in June pending
approval from the Securities and Exchange Commission.
Next up is the Miami International Securities Exchange
(MIAX), which filed an application with the SEC to open the MIAX
Options Exchange. The planned launch is late September.
The International Securities Exchange (ISE), which hasn't
yet filed an application to the SEC, is seeking to launch its
second stock-options exchange by the end of the year.
"Fragmenting markets are always more challenging for
investors as well as market makers," Nybo said.
A factor in favor of new competitors has been stagnating
cash equity volumes in recent years, at a time when derivative
trading has grown at a compound annual growth rate in excess of
20 percent since 2003, according to TABB Group.
This year's decline, however, is partly due to market
volatility, which has fallen to the lowest levels in five years.
Options are a popular hedging tool against a volatile stock
Average daily trading volume on all the U.S. options
exchanges in April fell 4.71 percent to 15.98 million contracts
from 16.8 million contracts traded in the same year ago period,
according to the Options Industry Council.
So far this year U.S. equity options volume, which includes
options on individual stocks and exchange-traded funds, came in
at 1.27 billion contracts, down 7.72 percent compared to the
1.38 billion traded throughout the same period last year.
In previous years, when new exchanges were created, "nobody
was complaining because the pie was getting bigger, the industry
was growing," Paul Finnegan, co-chief executive of NYSE Arca
options, said at the Options Industry Council conference.
The landscape looks a little different now. "With three more
exchanges added, it will be the interesting to see where the
profitability comes in. You will have volume, but you may not
profit," he told reporters.