ICE Cool on Options
Speaking at the Credit Suisse Financial Services Forum in Miami Beach, Fla., Jeff Sprecher, founder, CEO, and chairman of Intercontinental Exchange, painted a less than rosy picture of the options market.
“That is one of the most confounding businesses that we have,” he said. “The use of options as a tool for risk management is increasing. Yet, the options volume on listed exchanges is decreasing.”
The average daily volume for exchange-listed options in 2016 fell 2% compared to 2015 while January 2017 saw a 10% decline in volume compared to January 2016, according to Options Clearing Corp. data. ICE’s NYSE Group operates the Amex and Arca options exchanges.
Sprecher attributed some of the volume decline to investors preferring to use listed future contracts as a hedge against future risk rather than via regulated options.
“I’m on a university endowment board, and I’m watching our behavior where we are using futures to get exposure to debt and equity in new ways,” he said.
The not-growing market already has increased competition among options exchanges, and market consolidation was inevitable, he noted.
In June 2016, Nasdaq completed its $1.1-billion acquisition of the International Securities Exchange from the Deutsche Börse, and the Chicago Board Options Exchange is waiting for approval for its $3.2-billion acquisition of competitor Bats Global Markets.
However, Sprecher does not plan to jump on the acquisition bandwagon nor does he see fighting to increase the New York Stock Exchange’s portion of overall market share in a decreasing market as a viable strategy.
“It’s one of the most efficient markets in which we participate,” he said. “We can cut our prices, and our volume definitely will go up, and it will go up exactly the amount so that our net doesn’t change.”
Instead, Sprecher has instructed his team not focus on market share but to focus on what the exchange operator does well, find customers that like what the exchange does, and charge them a reasonable rate.
“And if we lose market share, I don’t care,” he said. “They need to maximize the business and forget about market share.”
Sprecher said he sees no benefit from exiting the options market. “As a manager, I have two choices,” he explained. “I could cut prices and talk about our improving market share, or we can maximize the footprint that we have. I’m choosing the latter.”
Don't expect the roll-outs to have a big impact on market share, one industry analyst says.
Less can be more when it comes to trading venues.
Small-cap liquidity has improved slightly, but more work is needed.
What does 2017 have in store for equity market structure?
One technology broker provides preliminary insight into the Tick Pilot program