Arca Options, 'Market-Structure Leader'
NYSE's Boyle plans to leverage momentum in 2008
January 14, 2008
Introduced in August 2006, NYSE Arca Options has been a major beneficiary of the options market's steadily rising volumes. Based on the all-electronic equities platform that NYSE Euronext acquired with Archipelago Holdings in March 2006, NYSE Arca's share of daily transaction volume was at 16.3 percent last month, up from 14.6 percent in December 2006. It typically ranks third in options market share, behind the International Securities Exchange and Chicago Board Options Exchange.
"NYSE Arca was the fastest-growing U.S. equity options exchange in 2007, with a 60 percent growth rate, compared to the industry average of 30 percent," notes NYSE Arca Options VP Edward Boyle. "We have plans in place for 2008 to leverage that momentum by implementing new functionalities, new products and order types, and continuing to attract new participants."
"Having the NYSE name behind them doesn't hurt either," says Kevin McPartland, senior analyst with New York-based Tabb Group. "It leaves traders with an unspoken confidence that the exchange is in this for the long haul, and that NYSE Euronext will continue to invest in improving the market."
Options volumes tend to ignite in volatile times, but McPartland says Arca's future success will depend on its "continuing to grow order flow," which "will be increasingly difficult as competition picks up." And with the Nasdaq Stock Market's options exchange anticipated to open any day now, competition will certainly intensify.
In fact, Nasdaq will be running two exchanges--the Nasdaq Options Market (NOM) and the Philadelphia Stock Exchange, which in November agreed to be acquired by the exchange. "They are hedging their bets as to which options market structure is most attractive to traders but, on the other hand, they're further fragmenting liquidity, making it harder for both of their exchanges--not to mention the other five--to gain the order flow they need," notes McPartland.
NYSE Arca--as will NOM--employs a maker-taker fee model, which it has had in place since the Securities and Exchange Commission's pilot test of penny-increment pricing for options began on Jan. 27, 2007. The fee schedule, in which investors are charged for removing liquidity and credited for providing it, has contributed to Arca's growing volumes; in September it was adopted by the Boston Options Exchange (BOX).
The maker-taker model has been "validated by being imitated by other exchanges," says Boyle, who joined NYSE in October from TD Securities, where he was VP and director of equity derivatives. "We are proud to be the leader in options-pricing and market-structure initiatives," he adds.
Boyle was managing director of business development and client services at Chicago-based options firm Letco Trading from 1999 to 2002, when it was acquired by TD Bank. Boyle, previously a principal in market-making firm Platinum Trading in Chicago, spoke with Securities Industry News markets reporter Dawn Kissi about NYSE Arca's role as a market structure pioneer, the ongoing search for liquidity, and Arca's plans to integrate with the company's Euronext.liffe derivatives business.
What is the market position of NYSE Arca? NYSE Arca Options is leading the U.S. options market with the adoption of new technology and market structures to reflect the changing dynamics of the market. We are offering opportunities for both market makers and non-market makers to trade rapidly on both sides of the market, and to take and post liquidity. We are the most successful exchange, in terms of increasing market share and traded volume, in the first stages of the SEC-mandated penny pilot program. Our market share steadily increased in 2007, and in November we were the third-largest options exchange. Our electronic platform alone is executing approximately 10 percent of industry volume, and when combined with our open-outcry trading for large block trades, we are experiencing very rapid growth. Since the options platform's launch last year, NYSE Arca has established itself as a major player in the U.S. for overall trading in equity options and for penny pilot options, a progression we are very proud of.
