Equity Options Market in Europe: Exchanges and Electronic Trading Gain Importance

by Anshuman Jaswal, PhD, April 13, 2011
Industry Trends
EMEA

Abstract

 Europe is the most developed market for OTC equity options. However, the rising maturity of the European markets and the need to reduce counterparty risk have meant that some OTC business has moved to the exchanges.

In a new report, Equity Options Market in Europe: Exchanges and Electronic Trading Gain Importance, Celent studies the leading global equity options market. In a rapidly changing environment, market participants have to adapt to the higher complexity and use of more advanced technology. There has been a move towards more electronic trading, and we can trace a shift in business moving from the OTC segment to exchanges as the market participants seek to trade standardized products on exchanges.

During the period between December 2008 and June 2010, there were declines in both notional amount outstanding for OTC equity options and exchange-traded equity index options. But the decline was more pronounced for OTC options, from US$3,154 billion to US$2,328 billion, around 26%. In the same period, exchange-traded equity options declined by about 10%, from US$3,034 billion to US$2,236 billion. This shows that there was greater resilience in the exchange-traded market.

“There has been a lot of pressure on European equity options markets of late, due to both the economic environment and the regulatory changes,” says Anshuman Jaswal, Celent Senior Analyst and author of the report. “Rapid evolution means that market participants have to adapt quickly and prepare themselves for higher levels of electronic trading and CCP clearing.”

This report provides an overview of the European market and discuss the relevance of recent developments. This is followed by sections on the OTC and exchange-traded markets. The move towards greater electronic trading is discussed, followed by a section on the challenges being faced by the various market participants.

The 48-page report contains 22 figures and four tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

6

Market Overview

8

 

Impact of Recent Developments

10

OTC Market

12

 

OTC Equity Options Clearing

15

 

OTC Post-Trade Processing

16

Exchange-Traded Market

18

 

Pricing and Market Models

18

 

Performance of Exchange-Traded Market

19

Electronic Trading in Options

24

Conclusion

27

Appendix A: Options Trading Platforms and Technology

29

 

Brokers

29

 

Technology Providers

30

Appendix B: OTC Equity Options Clearing

38

 

NYSE-LIFFE BClear

38

 

Eurex

40

Leveraging Celent’s Expertise

44

 

Support for Financial Institutions

44

 

Support for Vendors

44

Related Celent Research

45

Sign in to download reports and access personalized information