Options Exchanges Make Room

Terry Flanagan

Competition among options exchanges has ratcheted up from fierce to fiercer.

Top-dog exchange operators including Chicago Board Options Exchange, NYSE Euronext, International Securities Exchange and Nasdaq OMX are rolling out new bells and whistles to wrest a percentage point or two of market share from the next guy. Smaller players such as Bats Global Markets and Box Options Exchange are pushing to get to the next level. Miax Options Exchange joined the fray just last year, and ISE is planning to launch a new venue in the second quarter.

As the options-exchange field (supply) expands, order flow (demand) remains off levels from a couple years ago, so there’s less business to go around.

“There is increased competitive pressure, whether from pricing or new products and services,” said Steve Crutchfield, chief executive of NYSE Euronext’s Amex and Arca options exchanges. “There is ongoing pressure to differentiate yourself and win and maintain business, and certainly that pressure has increased over the past couple years.”

Of about 312 million options contracts traded in March, CBOE led exchange operators with about 27.9% market share, which included 25.9% for its main exchange and 1.86% for its C2 venue, according to Options Clearing Corp. Nasdaq was close behind with 26.9%, comprising 17.9% for its PHLX exchange, 8.13% for its Nasdaq exchange, and 0.86% for its BX exchange.

NYSE Euronext was third among exchange operators with a market share of 24.2%, spanning 13.4% for Amex and 10.8% for Arca; ISE weighed in at 15.2% for its one exchange. After that it’s a big dropoff to Bats at 3.76%, Box at 2.06%, and Miax at 0.18%.

“All the exchange entities out there, except for the newest ones where it’s too early to say, have viable businesses,” Crutchfield told Markets Media. “Some competitors have been in the business for years but they’ve have never had much more than a handful of percentage points in market share.”

With the burgeoning field of exchanges — 11, heading to 12 — one concurrent trend has been for individual exchanges to try to differentiate themselves by going after targeted areas within the options market. This is in sharp contrast to the landscape back in the 1990s, when four big exchanges (CBOE, Amex, Arca nee Pacific Stock Exchange, and PHLX) each offered a broad, all-things-to-all-people model.

“Now you see exchanges focusing more on their respective niches,” Crutchfield said. “We see more differentiation and exchanges trying to carve out their own niche for order flow.”


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