2015 Outlook: Tony McCormick, BOX Options Exchange

Terry Flanagan

Tony McCormick is CEO of BOX Options Exchange.

What were the major themes of your business in 2014?

Tony McCormick, BOX Exchange

Tony McCormick,
BOX Exchange

The number one challenge we had as exchange operators was the dearth of volatility. We had some spurts of volatility during the year, but overall, volatility remains fairly dormant, and when that happens, usually options trading is fairly restrained and volumes tend to be 13 million to 15 million contracts a day. When you get spurts of volatility you may get into the 20s which is healthy if you’re running an exchange.

There are 12 exchanges now and we know we will see at least one more additional exchange coming out to the marketplace. This carves up the market into smaller and smaller pieces of market share, and with the amount of things an exchange operator has to do on the regulatory front, it becomes very difficult to justify entry. My feeling is that some of the participants in the business here aren’t making money, or they’re just hoping to outlast others who aren’t making money. That’s not healthy.

So I’m surprised that people are willing to launch new market models, and fragment the existing market even more than it’s already fragmented. It doesn’t really make economic sense.

What are your expectations for 2015?

The pie is getting larger overall as more participants start using options — potentially that continues. If we see interest rates go higher, that will stoke volatility and increase trading activity as well.

One bright spot is the investment advisory world, which is getting more familiar with using options. That’s still fairly untapped at this point and it would be a good additional source of trading activity.

The counter side is that exchange systems need further improvement and risk tools continually have to be upgraded. There is a big move in this already and it will move forward this year. More risk tools will be introduced to measure risk at the front end of the process, when quotes come in, plus kill switches. All of this has to be improved, from the sides of both regulators and industry participants.

There is a strong emphasis on risk tools and the capability to control risk at the exchange level and at the broker-dealer level. But all this requires capital investment and resources, which butts up against the fact that the returns from those investments are getting smaller.



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