With the U.S. options exchanges numbering a baker’s dozen, it is not an easy task to keep straight all of the names of these entities, let alone the new initiatives, updates and other exchange happenings. Fortunately, once a year we gather them together in one room. This year, that room is in Miami at the iconic Fontainebleau Hotel.
The Options Industry Conference got underway on Wednesday with the exchanges updates panel, where representatives of each exchange tell attendees what’s new and what’s ahead for their exchanges.
Here are some of the highlights from that panel:
Kapil Rathi from BATS Options noted that BATS grew its equity options market share from 4.6 percent to 10.7 percent in April.
“We are the largest make/take exchange in market share, the largest equity exchange in Europe and the second biggest in the U.S.,” he said.
Exchange milestones in the past 6 months included:
– The acquisition of Hotspot, which will add equities as a new asset class
– The recently completed migration of Direct Edge onto the BATS platform
– Completion of the migration of the data center to Equinix
The exchange grew its market share with every phase of these developments, Rathi said.
BATS Options is looking to getting into the pro rata space, which Rathi said is about two thirds of the options business. The exchange plans to launch EdgX Options with a pro rata based model. It will have the same connectivity and data feeds as BATS Options.
Patty Schuler of BOX said:
BOX is not launching a new exchange
BOX recently implemented a new version of its high speed vendor feed
It also simplified its order origin codes by removing the codes no longer in use, and upgraded to new servers, and it is launching a new trade allocation algorithm.
It has also introduced a new preferenced order type and made changes to the layout of its monthly billing invoices to give customers more information.
Schuler also said the exchange is currently gathering requirements for the OCC’s pre-trade validation initiative, and it expects to be Reg SCI compliant by November.
In addition, BOX recently received SEC approval to launch its new RealVol SPY options in partnership with VolX, and will launch soon.
David Gray of the CBOE said his exchange is focused on three areas at the moment: new products, broadening access for participants, and educating and engaging customers.
In new products, CBOE has expanded its licensing agreements with MSCI and the London Stock Exchange Group. It plans to launch futures on several MSCI indexes in April and will later launch options on four other MSCI Indexes. The agreement with LSE enables the exchange to offer cash settled options on more than two dozen indexes, he said.
In addition, CBOE and C2 became the sole providers of Russell index options on May 5, and expanded their volatility product line to new asset classes, including the first measures of pure forex volatility, Gray said. It will launch weekly forex volatility futures in July, pending regulatory approval.
The new products will complement its VIX futures and options.
As for broadening access to its marketplace, CBOE last summer implemented near-24 hour trading in VIX futures, included extended overseas hours. 10 percent of the market now takes place outside US trading hours, he said.
The exchange will soon introduce CBOE Vector, a new platform engineered to provide greater transaction speed while handling increased message traffic, Gray said.
As for education, the exchange has a newly redesigned web site and recently launched an options education app.
Geralyn Endo of ISE said the “rule of three” also applies to ISE, which will soon offer three options exchanges with three different fee models.
The exchange offers its original exchange, ISE options, as well as ISE Gemini, and ISE Mercury will launch in the second half of 2015, pending SEC approval.
All three platforms use a customer priority pro rata market model, but the fee model is what distinguishes each from the others.
ISE offers modified maker-taker, Gemini offers traditional maker-taker, and Mercury will offer traditional pricing, with payment for order flow.
ISE is also introducing PrecISE, a new order management system, which will provide access to all three exchanges, with enhanced risk management functionality.
In addition, ISE’s ETF ventures team was awarded the most innovative index for ISE’s cybersecurity index in 2013. It is the “first and only index focused on public companies that provide cybersecurity technology,” Endo said.
Shelly Brown of MIAX Options said MIAX will not have three options exchanges.
Its recent endeavors, however include introducing MIAX Prime last year, as well as a new risk protection mechanism in April
One important addition MIAX has been working on is a complex order mechanism, which it plans to introduce late this year or early next year. A large percentage of options volume comes from complex orders, so this could help MIAX compete in the current crowded options exchange field.
MIAX also added RPM functionality last month, and is ready to certify with the OCC for mandated risk metrics, which is required by June 1, 2016.
Greg Ferrari of Nasdaq said Nasdaq believes the options markets are “highly functional” but there is still much work to be done to improve them.
“Today’s risk management tools are very sophisticated,” he said. “We commend the OCC for taking a leadership position to bring about risk management standards.”
He said Nasdaq is in the final stages of launching a multi-ticker rapid fire product which will allow the exchange to add resilience in times of duress.
The exchange is continuing to focus on the expanded use of price improvement auctions, he said. The issue is currently controversial, and he said while he was “not there to debate” at the moment, he “would like to make the audience aware of the unintended consequences” of auctions.
The exchange has recently rolled out implied orders and completed a full overhaul of its technology platform, he said, which now offers a round trip time of 44 microseconds.
Nasdaq plans to launch a new futures exchange, NFX, and will eventually introduced options on WTI, Crude Oil, Brent, and Henry Hub Natgas futures.
Bill Ryan of NYSE Options took an unusual route to Miami Beach for the conference, riding in with a cohort from the options world from Maine on motorcycles in order to raise money for St. Jude’s children’s hospital and the Babies Heart Fund.
In exchange-related news, he said Amex and Arca updated the default settings for risk mitigation to 25 symbols last year, and last June received a rule change approval for a minimum contract size for flex options.
Amex and Arca have been approved to add price protection filters and will soon add this feature. Also, Amex is relaunching binary options, with a maximum value of $100,000 per contract. They will trade in penny and dollar strikes. The exchange expects binary trading to begin by late June or early July.
Finally, Amex options recently constructed a new floor for Amex options trading and migrated in January from the old spot to the newly renovated room.
Consider yourself informed.