Equity options in the United States are booming. In the first half of the year, over 2bn contracts were traded, with 376m contracts changing hands in June, at 21% increase on 2010. Daily equity options volume had an average of 16,039,382 contracts per day in July, a 31% increase on July 2010. As the US equity options markets rocket to their eighth consecutive record year, there are some clear lessons that can be learned from their success.
Options trading in the US is the nirvana of global
derivatives. Fungible contracts are traded across nine
competing exchanges, in both electronic and open outcry,
cleared through one clearing house, while market structures
tailor to both retail and institutional investors. Spreads are
tight and costs are low.
The current competition in the market has its roots in spin
off of the CBOE Clearing Corporation, which became the OCC, a
utility, not for profit clearing house owned by the exchanges.
The horizontal model, now perhaps a missed opportunity for
Europe, enabled fungibility of contracts while keeping clearing
Recent growth in the US equity derivatives market has been
down to three key areas: reduced costs and exchange innovation
due to the fierce competition between the exchanges; the
introduction the Penny Pilot Programme (see box) and the
increasing institutional interest in US options markets.
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