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Article / 21 June 2018 at 8:46 GMT

OIC unveils study on European demand for US-listed equity options

Director, Europe / The Options Industry Council (OIC)
United Kingdom
By Gary Delany

The Options Industry Council (OIC) has just released a new study on European demand for US exchange-listed equity options, which builds upon previous studies done in 2014 and 2011. Commissioned by OIC, the study was conducted by research firm Burton-Taylor, a division of TP ICAP. Some of the key findings are outlined below. 

Download the full report free here.

European Investors account for estimated 9% of US exchange-listed equity options volume

Order flow from Europe is estimated to account for 9% of total trading in US exchange-listed equity options, similar to 2014 levels. This has been against a background of sustained, low volatility. The upward spike in volatility in Q1 this year increased total US option market volume by over 30%. Also, the value of European holdings of US securities has risen 52% since 2013, the highest level on record.

Customer profiles

European investors are using US options to focus on income generation, capital appreciation and volatility strategies. However, low volatility has reduced trading by high-volume trading accounts including hedge funds and proprietary trading firms. There is also significant opportunity to expand retail investor activity.

Hedge funds remain the largest category of European user, accounting for an estimated 53% of total European order flow. Private wealth management accounts for 21%, proprietary accounts 12%, and investment managers 8%.

What investors find attractive

Liquidity, price transparency and market structure are key drivers, with clearing house OCC issuing and guaranteeing contracts for the 15 US equity option exchanges thus reducing counterparty risk.

European investors saw the most potential in short-term options (42%), ETF options (42%) and single stock options (33%).

Weekly expirations accounted for 28% of total volume in 2017, representing a 5-year CAGR of 17.9%.

ETF options continue to grow, reflecting the interest in passive investment strategies and now account for 38% of total trading. Seven of the top 10 most active US listed options represent ETF or broad market indexes. ETFs have shown a 14.8% CAGR 2006-2017, compared to 9.5% for index options and 3.1% for single stock options.

Challenges

As for every part of the financial markets, US equity options must conform to a wide range of regulations, raising costs for the industry by compelling it to build appropriate systems and compliance protocols. The regulatory burden is generally more onerous for broker dealers: 90% of the sell side users interviewed cited European regulations as having an impact, compared to 18% for the buy side.

There is an ongoing need for education, with 30% of those interviewed stating that a better understanding of equity options would help them grow their business.

Opportunities

With 15 US equity options exchanges cleared by OCC, competition in new products remains intense. 71% of those interviewed reported more demand for US equity options over the past 2 years, 26% a greater use of new products and 18% more retail demand. 53% said that increased volatility would result in more trading.

To download a copy of the complete report, click here.

About OIC

Celebrating its 25th anniversary, OIC is an industry resource funded by OCC, the world’s largest equity derivatives clearing organization. Its mission is to provide free and unbiased education to retail investors, financial advisors and institutions about the benefits and risks of exchange-listed options. Managed by OCC, OIC offers training which includes webinars, podcasts, videos, seminars, self-directed online courses, mobile tools, and live help. OIC's Roundtable is the independent governing body of the Council and is comprised of representatives from the exchanges, member brokerage firms, and OCC. For more information on the educational services OIC provides for investors, visit www.OptionsEducation.org.

Copyright © 2018. The Options Industry Council. All rights reserved.

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