The 2013 OIC Conference started Thursday morning with Andy Nybo of the TABB Group giving an update on the State of the Listed Options Industry.? While the Options Insider is going to post the audio from every session, including this one, we thought we’d give you a preview of what he had to say.
- While the industry is in the second year of decline, it won’t be as bad as 2012.? Without any major events taking place, TABB group is predicting a 3.8% decline from last year.
- The decline is partly because of a lack of volatility, which in turn makes spreads tighter.? While that may be good for customers, it’s makes things more challenging for Market Makers, who have to be more aggressive in order to trade bigger size.
- The industry is seeing a loss of Market Makers, who are critical to the success of the industry.? Some of this is directly attributable to the increasing costs of technology, making it difficult, if not impossible, for smaller Market Making firms to keep up.
- Moving on to market complexity, Nybo said that in March, weekly options represented 19% of all options trades.? He believes that number could go up to 25%.
Some take-aways from a recent TABB Group study revealed the following:
- The buy-side is spending technology money on:
- Front end (OMS, EMS) – 51%
- Infrastructure – 26%
- Market Data – 23%
- The biggest challenges for Market Makers are:
- Technology – 62%
- Regulation – 35%
- Number of exchanges – 23%
- Exchange fees – 23%
- The biggest technology challenges are:
- Minimizing latency
- IT staffing
- Message rates
- Risk management
- Colocation
- Areas of growth
- There is $26 trillion in equity assets that can can employ options strategies.? Of that,
- $9.8 trillion is held by individual households
- $5.1 trillion is held by mutual funds
- $3.5 trillion is held in foreign accounts
- Market Makers say areas of growth lie in:
- Raising all industry volume
- New products
- Weeklys
- Volatility products
- Foreign markets
- Dailies