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The Trading Mesh

#Options #exchanges: the more the better?

Fri, 27 Apr 2012 10:31:51 GMT           

NASDAQ

Nasdaq OMX Group announced last month that it plans to open its 3rd options exchange to further complement the stock derivatives market.

Nasdaq considers this new platform a necessary addition to its floor-based Nasaq OMX PHLX and the fully electronic Nasdaq Options Market. Its two existing options exchanges were home to more than one-quarter of all U.S. options trading in March. Currently the new venue is pending regulatory approval and can be launched as soon as June.

Besides Nasdaq, NYSE Euronext and Chicago Board Options Exchange (CBOE) each operates two options trading platforms. Counting ISE, BATS Global Markets and Boston Options Exchange (BOX), there are 9 options exchanges now in the US. With ISE planning to open its second platform and Miami International Holdings launching another one, the number of options exchanges might grow to 12 within this year.

In theory, the more exchanges the merrier, because competition can improve product variety and services. However, some big brokers, such as BofA Merrill Lynch and Credit Suisse, are not particularly welcoming of these new potential venues. On the one hand, it significantly increases their technology budgets since they have to connect to all the exchanges. On the other hand, enough trading volume is needed to support all the venues and there hides the danger of fragmented market and liquidity.

C-level leaders from NYSE Euronext, CBOE and Boston Options Exchange will speak at the Exchange Technology World Chicago conference. At the event, they will discuss topics ranging from exchange technology development to market consolidation/exchange mergers.

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