Home > Weather forecast for the US equities options industry: cloudy with a chance of showers

Weather forecast for the US equities options industry: cloudy with a chance of showers

Though the US listed equities options industry faces a headwind of issues, there are some positives

Boston, July 16, 2013 – After experiencing 20 consecutive years of nearly parabolic growth, US listed equities options volume declined a whopping 13% in 2012. On such seas, the US listed equities options industry faces plenty of strong headwinds, among them possible liquidity fragmentation from Penny Pilot Program success, frequent IT glitches, and possible changes in the existing tax law that governs derivatives. The weather forecast for this industry is not all doom and gloom, however—silver linings include new listed options product innovations and an improving education effort by the Options Industry Council (OIC) to reach out to the investing public. These positive factors will continue to propel this industry's growth, even under the shadow of regulation.

Aite Group's options industry research produced  by senior analyst Howard Tai analyzes how the options trading environment has evolved in recent years as a result of the rise of new technology, the changing regulatory landscape, and new market participants that are increasingly attracted to using listed options as a trading vehicle and a potential source of alpha. This research is based on January through May 2013 conversations with options exchanges, derivatives clearing organizations, market-makers, banks and investment banks, institutional brokers, retail aggregators, proprietary trading firms (including high frequency trading shops), traditional buy-side asset managers, hedge funds, and technology vendors.

“Although headwinds faced by the industry vary, ranging from more frequent technology breakdowns at exchanges to potential elimination of the favorable 60/40 tax treatment for trading index options, reasons for optimism include the US government effectively establishing the Options Clearing Corporation (OCC) as the equities options industry's central clearing depository providing operational efficiency and eliminating counterparty credit risk. Equally encouraging is seeing OIC broaden its educational efforts to reach out to ever more investors, both retail and institutional, and that new product innovations in 2013, such as mini equities options and even jumbo SPY options, may bring about sufficient demand for market growth in the long run,” says Howard Tai, senior analyst in institutional securities & investments at Aite Group.  

Aite Group's institutional securities and investments clients can download the report here.


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