When Volume Does Not Speak Volumes

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So far, 2010 has turned out tobe atypical, at least as far as volume is concerned.  Once dominated bythe CBOE and ISE, 2010 total exchange volume has been led by twosmaller rivals: NYSE Euronext and NASDAQ OMX/PHLX.  When viewing totalexchange volume for the first quarter of 2010, the (once) big two aretrailing, with the gap for ISE widening considerably in March.

Here'sa snapshot of the volume trends in 2010 (click to enlarge):

(Source: OCC)

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Of course, this comparison is not entirelyapples-to-apples. After all, NYSE Euronext and NASDAQ OMX/PHLX arehybrid entities that contain both traditional and maker-taker exchanges.The PHLX also derives a significant percentage of its volume from dividendtrades, a fact which grossly inflates its overall standing in theoptions industry.

But, these nuances are typically lost onoutside investors and analysts who simply want to glean the overalltrend of the options market. For them, the trend indicated by the graphis quite clear, and the timing couldn't be worse for the CBOE. With anIPO scheduled for Q2, potential investors are taking a second look atthe exchange's valuation levels. If this erosion of market sharecontinues, it may have severe consequences for the exchange'sstakeholders.

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