challenges to developing options markets john tierney managing director the options industry council
DESCRIPTION
Do options distort the underlying market? l Improve liquidity: tighter spreads and greater depth l Increase trading volume, trading frequency and transaction size l Overall, option listing increases underlying market price efficiency Studies of equity markets suggest options:TRANSCRIPT
Challenges Challenges To Developing To Developing
Options MarketsOptions Markets John Tierney
Managing DirectorThe Options Industry Council
Potential problem areas are:Potential problem areas are:
Distortion of underlying market Liquidity Risk management Availability of hedging mechanisms Education Access
Do options distort the underlying market?Do options distort the underlying market?
Improve liquidity: tighter spreads and greater depth
Increase trading volume, trading frequency and transaction size
Overall, option listing increases underlying market price efficiency
Studies of equity markets suggest options:Studies of equity markets suggest options:
Liquidity in electronic options marketsLiquidity in electronic options markets
Official liquidity providers?
Choice of model – continuous quotation vs. telephone market
Encouragement of liquidity providers vs. discipline
Risk managementRisk management
Importance for market participants, exchanges, clearing houses and regulators
Need for sophisticated and appropriate models which are inexpensive
Flexibility in meeting margin requirements will encourage more activity without increasing risk
Hedging mechanismsHedging mechanisms
Particularly important for liquidity providers Ability to borrow underlying instrument
Liquidity in underlying in similar maturity
EducationEducation
Who are target audiences?
Who will provide?
Will it be self-financing?
Education v. marketing
AccessAccess
Barriers to entry
International access allows risk capital into the market
Importance of international business
Benefits of a wide range of participants
