The sharp rise in US options volumes last month represented not
only the most active April in history, but also why competition
is continuing to intensify in the market.
Throughout the month over 371m contracts were traded, a 16%
increase from April 2012.
The recent rise in participation has prompted additional
trading venues, such as the arrival of the Miami Options
Exchange (MIAX) at the tail end of last year, while the
International Securities Exchange (ISE) is also set to launch
its second venue.
NYSE, CBOE and Nasdaq also operating multiple trading
platforms, bringing the number of operational options exchanges
in the US to 11, with ISE’s Gemini proposal set to
So how do existing players stay relevant in this saturated
This week, the head of BATS US Options Exchange,
Jeromee Johnson speaks with
FOWi’s Jonathan Watkins about the
additional competition, the launch of mini options and where
participants turned to following the glitch on CBOE last
How has the start of 2013 been for
Everybody always wants more volumes and volatility for the
From a market share standpoint, on the options side we
are feeling pretty good about where things stand and how
business is progressing.
February was a record month for us, as was April. Our market
share is around 4% so I think we are heading in the right
Miami Options Exchange (MIAX) entered the market at the tail
end of last year and ISE are set to launch their second
platform, does the US options market need these additional
There’s a difference between need and
We are seeing multiple markets start up with more on the way. I
think there is room in the marketplace for additional
If you compare the options markets with the cash markets we
have 50+ venues when you take into account the ATSs, crossing
networks, dark pools etc., so it shows the extent to which flow
can be segmented.
There is still room and opportunity for segmentation in the
options markets among the exchanges.
If you look at the high level, Nasdaq has three different
market models; it wouldn’t surprise me to see the
likes of CBOE go from two-to-three. NYSE has two, ISE is
planning a second. We only have one.
Does the market place need 15 exchanges? No. But around that
you get additional competition.
The negatives are increased fragmentation, complexity in the
marketplace. If we are saying its only upsides then we are
fooling ourselves, as there certainly are downsides, but having
more market participants brings benefits along with the
BATS, along with the majority of the US options
market launched Mini Options in March. How have the products
been received and how did offering trading on the contracts
free of charge affect the uptake?
We’re happy to have the minis, and we offered free
trading to help support the product.
Overall I think the minis are off to a nice, solid start.
I think there is real potential with this product to bring new
participants into the game and give both new and existing
participants more economical choices when it comes to high
It’s not just something we see in the options
markets, there is a continuous bringing of products to the
market that never end up trading but the minis are off to a
real solid start and as an industry we should feel good about
There has been a very positive reaction - one of the challenges is that
the frictional costs of trading the minis are the same as the
So what most of the exchanges have done is take the transaction
charge of the standard products and scale it down by a factor
of ten, which is appropriate, but from BATS standpoint the cost
of listing these products is relatively small.
So with it being something that is a very positive
industry-wide development, to succeed and continue on the same
sort of trend with the weeklies and other products makes
By putting them out there and doing our part around that,
it makes sense to offer them for free.
The glitch on CBOE last week raised questions over
the single listing of options products, what kind of reaction
was there in the market to this?
It is very unfortunate for any exchange to have a glitch
like that, but technology breaks and it can happen to the best
It does highlight one of the general negatives of
proprietary products. For the products that are single-listed
on CBOE, there are not any direct and ready alternatives to
trading those products.
Institutional participants who couldn’t
transact in the SPX spoke to their brokers and they traded
Being part of the exchange landscape, I would much rather have
that volume on an exchange, even if it is happening on a
It is a risk in the market, where participants have been
forced to look and assess their alternatives.
So what is the solution to keep those volumes in the
Well one option is bringing up trading on these products on
an exchange operator’s 2nd or
Not just on these proprietary products, but from a general
systems backup availability standpoint.
Can you move that trading to a different platform even if
the model is not exactly the same? Maybe the technology is a
bit different, but then I’m thinking 'what happens
if there is a problem? How can I move trading to one of our
What is on the horizon for BATS in the coming
We have a few things in the pipeline.
On May 1 we opened up the bulk port thresholds for our
Up until now they were capped at 5,000 orders per second, so
we’ve taken the training wheels off.
We will be monitoring behavior over the next few weeks and
seeing how they are dealing with the
that will allow our members to trade even more with BATS.
We have got some enhancements to our risk mitigation
software which should be out late summer.
And then we’ll also look at an area of the market
where we’re not looking to do something
fundamentally different – the open.
Soon we will be able to accept orders pre-open. It is a
functionality which other exchanges offer so we have
subsequently been looking at how we can allow people to get
into the marketplace before the open.