From Todd Wilemon: The options industry wrapped up its annual get-together this last weekend in South Florida. The best news from the conference is that our industry is strong and still growing, even during the financial crisis.
I am always appreciative when sessions during these conferences are interesting. Again, good news: all were informative, most were quite interesting and a few were even entertaining — I’ll give you a few highlights.
Elizabeth King of the Securities and Exchange Commission started off the conference briefing us on how the SEC was dealing with the increased calls to limit short selling of stocks. New rules governing short selling are being formulated as you read this. What is unknown is whether Option Market Makers will continue to be exempt from short-sale rules when making markets and trading. Good news is that SEC is still in comment phase, so let them know what you think!
Innovation on the technology front continues to drive markets and trading to ever faster speeds. As trading has moved from floor to the electronic environments, speed and latency are more important than ever. During the session on “Messaging: The Key to Being Faster,” it was pointed out how networks and bandwidth constraints contributed to latency in the past. The new constraint is the number and interaction of different applications traders are using to make markets and trade.
Continuing on the theme of technology, the next session addressed “Challenges in Today’s Environment.” The discussion centered on how firms were coping with all of the electronic messages that each of the seven options exchanges generate and send out every second. OPRA and the OCC are both ramping up capacity to keep ahead of the ever-increasing onslaught of information.
The best session was the leadership panel. Heads of all exchanges plus John J. Lothian gave a bravo performance on where our industry is at and where we are headed. A little good-natured ribbing made for a humorous panel.
Some of the topics addressed on this panel: How many options exchanges do you need? (Answer: Several). Speculation is that more exchanges will be opening to trade listed options. What is the best exchange model — market maker pro rata allocation or price/time make/take model, or should each exchange operator operate both types? There was even some light banter about what a third market model might look like.
One serious topic that was addressed was the need to protect the options industry’s legacy of providing transparent markets. Going forward, transparency must be protected with the continued proliferation of multiple exchanges, aggregators, and the potential use of dark pools, including the current availability of dark pennies at one of the exchanges. “If we destroy transparency in the U.S.,” warned Ed Boyle, VP of US Options, NYSE Euronext, “we will see the options industry shrink and it could ultimately disappear.”
A wonderful panel including Jorge Alegria, the head of the Mexican Derivatives Exchange, gave an international perspective to our business. One of the growth areas for options is outside the United States. Education for both the retail and institutional customer will help grow trading in listed options internationally. Otto Naegeli, the U.S. “ambassador” to Europe for the Options Industry Council, mentioned that there is a big push in Europe going on right now to bring OIC–style educational content and seminars to the investing public in Europe, which is great news.
On everybody’s mind was the economy and market meltdown. David Marshal, VP of the Federal Reserve Bank of Chicago, tried to shed light on what happened and how the Fed is dealing with the consequences. So what happened? A perfect storm of over-capacity at the end of a real-estate boom that was based on excessive home valuations made possible by the securitization of sub-prime mortgages. He showed that while the Federal Reserve balance sheet has increased from billions to trillions of dollars of loans outstanding, most of the increase was short term in nature. As banks and the economy grow stronger, most of the loans will be repaid instead of being rolled over. All I have to say is good, pay those loans back!
An important takeaway is that while option trading volume did slip during the worst months of the recent economic crisis, it has already recovered. 2009 will be another year of increasing volume in our industry. Our industry is still young and the future continues to be bright.
Next year’s conference is in beautiful Phoenix. If you are an industry professional, I encourage you to attend; it is well worth your time.
See you in Phoenix!
TW
Comments
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment