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Electronic Equity Options Trading to Boom in 2007

http://www.financialnews-us.com/?page=ushome&contentid=1046784127

Jennifer McCandless
21 Dec 2006

Electronic equity options trading is expected to surge in the new year as new technologies are rolled out - although options make up a minority of electronic trades, volumes have more than doubled in recent years.
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According to a survey from Financial Insights and sponsored by Bank of America, automated options trading has gained a stronger foothold in the market. Of the 30 US buy-side firms surveyed, all expect to maintain or increase their equity options trading in the upcoming year.

Of those who responded to the survey, 61% said they traded some portion of their options holdings electronically, compared with just 39% who rely solely on the telephone to make trades.

Respondents also said the two most desired features of any electronic trading platform are the ability to execute multi-leg orders and smart-order routing capability.

"There are nascent technologies being developed that could do for options trading what algorithms did for equities. The survey suggests that options desks are beginning to embrace these new technologies," said Dean Curnutt, head of institutional equity derivative sales for Bank of America.

The survey found equity options account for a minority of total electronic trades, with six in 10 respondents having less than 10% of their assets invested in equity derivatives.

"The survey results suggest that growing buy-side interest in options as an asset class has increased both trading volume and demand for execution quality. With volume having more than doubled in the past five years, options markets are finding faster, more cost-efficient methods of execution," said David Cox, chief research officer at Financial Insights.

Smaller firms, typically those with less than $500m (€380m) in assets, are using automated equity options trading more often than their larger counterparts, mainly because smaller firms, especially hedge funds, tend to have fewer traders.