The options world is becoming skewed between the technology haves and the have-nots driving evolution in the sector, writes Dan Barnes
According to a recent Tabb Group report high-frequency
trading (HFT) is dominating US options trading, making
technology adoption a key determinant of success. But with
tight budgets, falling trading volumes and low volatility,
keeping up with the pace of technology adoption is proving too
much for many firms.
In his research report 'US options market-making: 2013',
Tabb analyst Andy Nybo notes that for market makers, investing
in cutting edge technology "has become a critical necessity to
survive". His analysis was based on interviews with 26 firms
operating market making strategies in the US, who combined
account for 45% of total traded market volume. At the core of
the report is the changing demographic of market participants,
with smaller firms and those unable to invest in technology
being pushed out or moving into other lines of work.
Russ Chrusciel, head of the Valdi Options platform at
trading technology supplier SunGard, says, "We have seen a
transformation of the industry in the last couple of years. Go
back eight years and there was consistent presence of market
makers, what we might call "Mom-and-Pop" shops, smaller market
maker group with pools of capital. Fast forward to 2013 and
firms need a minimum critical mass in order to compete. There
won't be firms operating with a few hundred thousand euro in an
account; firms typically have to be larger and better
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