All Together Now: Exchange Leaders Call For Cooperative Approach To Changing Market Structure

U.S. equity options leaders said today’s market structure needs fixing and vowed to work together to address it at the Options Industry Conference in Scottsdale, Arizona. Among some of the structural problems are a perceived lack of liquidity, a rigid regulatory structure that has supported the fragmentation of markets, and a concentration of volume on a relatively small number of listings.

Kevin Kennedy, who serves as senior vice president, head of U.S. options at Nasdaq, called for the exchanges and participants to work together to upgrade the market structure so it works better and more efficiently in the coming years.

“We’re complaining about the regulator but it’s not the regulator, it’s the market structure we built,” he said. “We need to modernize market structure.”

Ivan Brown, senior director, options business team, NYSE Group, said that the marketplace is unbalanced, with 50 percent of the options volume represented in 22 just names. He suggested that industry try to make structural changes to the bottom 1,000 listings. Some on the panel proposed scrapping penny pricing on those listings. Others have suggested delisting illiquid names, but exchange leaders said there should be more incentives to attract trading in them.

Kennedy said that a committee of industry participants with a small number of objectives and a set time frame to complete them could be effective. As Andy Lowenthal, senior vice president, business development at CBOE said, some issues are “low hanging fruit” ripe for resolution.   

The leaders also said that the industry should try to tackle auctions so that they work more synergistically with overall order flow. The multiple auctions processes used today offer choice, but there is concern that they are taking more natural order flow out of the market.

Whether Kennedy and the other exchange leaders can pull together an effective working group is unclear. But at least for a day, they seemed to be willing to address some major structural issues.