Wall Street & The Options Market - Part Two
Continued From: Part One
Q: DO YOU EXPECT MULTINATIONAL EXPANSION OR CONSOLIDATION IN THE OPTIONS MARKET?
- "I donít expect the options exchanges in this country to remain as single, separate exchanges," said Brad Bailey, Senior Research Analyst of Aite Group. "I expect them to become part of broader multinational exchanges. At the same time, technology is changing the fundamental structure of the industry in terms of who provides liquidity, etc."
- "What people have to realize is that itís not about America competing with itself," said Brendan Caldwell, President and Chief Executive Officer, Caldwell Investment. "Itís about America competing with the rest of the world. Most options exchanges around the world do not operate as stand-alone exchanges. But the challenge is two-pronged, U.S. exchanges need to streamline regulation and also make it easier for international investors to feel more comfortable using your capital markets."
- "It constantly perplexes me why there hasnít been more consolidation in the options space," said Richard Repetto, Partner, Sandler O'Neill & Partners. "Cash equities donít have the growth rate of options, so people are trying to enter this space and move upstream in terms of growth. Of course, the growth rate of futures exchanges is stronger, perhaps even better than options. They also have a protected business model, so they arenít migrating downstream to options as much. But it still perplexes me why there are so many options exchanges."
Q: DO THE EXCHANGES OFFER ANY VALUE FROM A MULTI-ASSET PERSPECTIVE? AFTER ALL, MOST BROKERS ALREADY OFFER MULTI-ASSET FUNCTIONALITY.
- "The exchanges need to add this functionality because the brokers can already do it," said Caldwell. "In a sense, they are somewhat in competition with the brokers. It is conceivable, although unlikely, that brokers could eventually replace the exchanges. The exchanges need to take drastic steps to make darn sure that doesnít happen. They need to match, or possibly even surpsass, what the brokers can already do on their own."
- "I asked a LIFFE representative what synergies come from offering multiple asset classes," said Repetto. "He responded that there are none. Itís a fallacy to think that this is a benefit to the customer. Itís a benefit to the exchanges from a financial standpoint, but not to the customer. The real advantage to the exchanges comes when they develop new products that canít easily be replicated and executed by the brokerage technology platforms."
- "At the end of the day, I donít think anyone cares if an exchange offers multiple products," said Michael Ryan, Head of Wealth Management Research at UBS
To Be Continued In: "Part Three"...
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