As options exchanges jostle for position in a crowded field, the monthly OCC options market share report sometimes tells an interesting story. MIAX Options Exchange is one of them.
MIAX posted total equity options market share of 4.38 percent in January, a nice jump from 2.65 percent a year earlier, according to the OCC Options Exchange market share data.
Another notable leap was at BATS, which posted an 8.78 percent market share in January, up from 3.28 percent a year earlier, and up from 6.3 percent in December. (See Kansas City Swinging Hot BATS – http://jlne.ws/1LIKSPh)
And it’s not just a one-month blip for MIAX, which has consistently been posting larger market share numbers in recent months. In the fourth quarter last year, the exchange’s total equity options market share was: 3.27 percent in October, 3.69 percent in November and 3.93 percent in December. The third quarter average was 3.91 percent, a 250 percent growth in volume from the third quarter of 2013.
While market share migrates from one exchange to another on a month-to-month basis, MIAX is worth noting because the exchange is just over two years old now. It has long boasted that it is among the fastest execution platforms in the industry and has been making significant moves to bring more volume in.
On Wednesday, MIAX announced an equity rights deal with seven order flow providers and market makers to take an ownership stake in the exchange if various volume and liquidity targets are met. This is the second such deal for MIAX, which launched its MIAX’s MIH Equity Rights Program in 2013, with Wolverine, Susquehanna, Morgan Stanley, Knight Capital Americas, Interactive Brokers and Bank of America-Merrill Lynch (BAML). Yesterday, MIAX kept all but one of those firms and added Citadel and Optiver to that equity rights roster as well. BAML has dropped out from that program, although it will remain an active member and partner.
MIAX has flown under the radar since its launch on December 7, 2012 but the exchange believes it now has the partnerships in place to grow its market share dramatically. MIAX hopes to expand its market share to 10- to 12 percent, said Tom Gallagher, MIAX chairman and CEO.
MIAX’s growth has been solid to date, given the limited segment of the options market in which it competes, which is simple orders executed in a pro-rata pricing model. MIAX does not yet offer complex, or multi-legged orders to customers, nor does it have a second exchange that offers maker-taker pricing such as Nasdaq, NYSE, ISE and CBOE. As such, Gallagher says MIAX has been competing in a segment of the options space that generates about 5 million contracts per day.
“For us to be doing between 700,000 and 800,000 contracts per day, we’re really getting closer to 20 percent of the products that we have access to and sell,” Gallagher said. “So in the markets we’re competing in, we’re doing very well.”
Gallagher said MIAX does not want to simply follow suit with the other options exchanges by launching its own maker-taker exchange, which would be the 13th US equity options market. To him, there is a concern that the proliferation of exchanges, which in reality are simply different pricing structures for options participants, may be splitting liquidity in an unhealthy way.
“We’re looking at other ways to expand our footprint in the equity options space,” he said. “But we’re extremely cognizant of market fragmentation issues and increasing the cost on our membership to connect to additional venues.”
MIAX plans to roll out complex order functionality in the third quarter this year. It also is looking to add more functionality to the platform as well sell or license some of its technology to other exchanges around the globe through its MIAX Technologies. And with all of that, he expects MIAX to become profitable in the first half of this year.
Meanwhile, MIAX is still planning on building and launching a new equity market, MIAX Equities Exchange, that will focus on Latin American companies, connecting them with the growing Hispanic population of investors in the US and elsewhere. It has filed with the Securities and Exchange Commission for the new exchange and has tentatively penciled in a launch in the fourth quarter of 2015 or first quarter of 2016.
“We are putting together a consortium of users, similar to the deal with the options markets we just did,” he said. “Part of that business is to seriously focus on the listings side of the equities business. We want to be the place where the global Hispanic entrepreneur seeks to go public.”