The U.S. market for exchange-traded options took off during the past decade. The buy side is increasingly looking at options as instruments to hedge risk exposure and generate alpha, according to TABB Group’s recent report on the state of the U.S. options markets. In fact, TABB estimates that volumes will increase by more than 5 percent by year-end, even as market volatility wanes. So what is continuing to fuel growth in the options markets?
Market transparency and growing adoption of electronic trading technologies are key contributing factors. The changes in regulation and increasing use of electronic trading helped raise volume an average of 21 percent a year from 2000 to 2010 on seven U.S. options exchanges. Today, the options markets are supported by 12 exchanges and electronic venues where traders can access legitimate, reliable prices and order information so they can confidently and quickly execute a trade.
While the increase in trading venues has increased competition and lowered transaction costs for investors, fragmentation has also forced continued investment in technology on both the sell side and buy side. One area of investment on the buy side is platforms that help aggregate liquidity across multiple counterparties and exchanges. To access liquidity and capitalize on momentary market opportunities, institutional investors are adopting electronic platforms that offer integrated pricing monitors, trade analytics, risk monitors, and other tools. For the second year in a row, TABB’s study found Bloomberg Execution Management System (EMSX) is the most popular electronic trading platform for U.S. options. Now, I may be biased, but what I believe this reveals is that options market participants value unparalleled technology and transparency – but they also value choice. For the full article courtesy of TabbForum, please click here
