David Stocken is Senior Manager, Institutional Sales, at the Australian Securities Exchange (ASX). He sat down with Sarah Rudolph at the Options Industry Conference in Savannah to talk about some recent changes to ASX’s market structure and opportunities for US institutional investors to trade ASX options.
Q: Tell me a little about what you guys are doing at ASX?
A: The Australian Exchange is at the conference for two reasons. We want to promote the SEC relief that we have over our market and we want to promote some significant market structure changes we have recently made.
ASX has received SEC “No Action” Relief over our Equity Options market. What this means is that a “US eligible broker dealer” or a “US eligible institution,” as defined by the SEC, can now trade the equity options we have listed on the ASX. ASX lists equity options over the largest cap and most liquid Australian companies. So for example, a large US mutual fund who owns shares in BHP Billiton can now trade the equity options we have listed over BHP Billiton.
Regarding our market structure, we’ve made two big changes recently. We’ve reduced our contract size from 1,000 shares to 100 shares per contract to be in line with international standards, because most of the options exchanges around the world, and particularly in America, have 100 shares per contract.
Also, we have just introduced a new market making scheme whereby our market makers have to meet higher quoting requirements than before.
Q: Is this available to US customers right now?
A: Yes it is available right now.
Q: When did you receive the SEC no-action relief letter?
A: We actually got the SEC no-action relief letter late in 2007. But our promotional efforts regarding the SEC relief in the US have been modest to date. We wanted to make those market structure changes I previously mentioned before promoting the SEC relief in any major way. Coming to the OIC Conference is a great opportunity to put our story forward. Particularly as so many brokers attend this conference.
Q: So the relief letter grants you the right to allow people in the US to access your equity options market?
A: Yes. However I should stress again that the relief is for “eligible broker-dealers” or “eligible institutions” in the US, as defined by the SEC. The relief is not for US retail customers.
Q: How many companies does ASX list equity options on?
A: ASX currently lists equity options over 60 plus of our leading companies. And eligible US customers can trade into almost all of these.
Q: So there are some restrictions concerning the SEC relief?
A: Yes. The first restriction is that US customers cannot trade into equity options of a company if ASX is not the primary listing exchange of that company. This rules out a small number of companies, such as News Corporation.
Q: How would a US customer know which companies they can trade?
A: On our website we specifically list which companies US customers can trade options on and which companies US customers cannot trade options on.*
Another restriction concerning our SEC relief is that US customers can not trade our LEPO contracts, which are similar to the LEAPs traded in the US.
Q: Which brokers are available for this?
A: We also have a list of all the Australian brokers who can transact in ASX equity options available on our website. US eligible broker-dealers and eligible institutions would be very familiar with the brokers on this list who are global institutional brokers.
Q: You mentioned changes to your market making scheme; how many market makers are active on the ASX equity options market?
A: We currently have 12 active market makers. Once again we have a number of international players in this space: Optiver, IMC, Susquehanna and Timber Hill make markets in all of the equity options that we list.
Q: So what should a potential US trader of Australian Equity Options do next?
A: They should contact me to get sent a copy of the ASX Options Disclosure Document. A US client would need to have received the ASX Options Disclosure Document before they can start trading on our market.
Q: How long has ASX been around?
A: ASX has had a listed equity options market since 1976, and we were the first options market to be established outside the U.S.