Analysis | European equity derivatives Equity & index options Ben Calev, Chief Technology Officer, Transaction Auditing Group, Inc (TAG).
In this issue, TAG continues its analysis of the European derivatives markets. In addition to our analysis of single-stock equity options and the developing market fragmentation, we begin a discussion surrounding the controversy of index- based derivatives within the Dutch options market. As we continue to observe this fragmentation,
we see a familiar pattern of “who owns what” and “who needs a license to do X” as has been commonplace in the US markets almost since inception. With “product diversity” and major operators (e.g. NASDAQ OMX) taking a larger stake in the pan-European derivatives market, this promises to be an extremely contentious battle. For the month ending April 2013, we see TOM
gaining approximately 2% market share over March 2013. NYSE Euronext has maintained a leading position, albeit down almost 3% since the previous period. Eurex remained steady with a marginal increase to approximately 12.6% (see Figs.1 & 2). For the month ending May 2013, we see the
largest fluctuation to date. While Eurex remained steady at approximately 12.7% market share, we see a rather large 5% increase for TOM accounted for by a similar decrease for NYSE Euronext (see Figs.3 & 4). June 2013 appears to have been a stabilising
month, with NYSE Euronext regaining close to 2% market share, for an aggregate of 69%, having bested Eurex, which experienced a decline of the same 2% (see Figs.5 & 6). While the battle for market share continues,
TOM has continued to create controversy and competition within the market. In January 2013, TOM began offering options based upon the value of NYSE Euronext’s popular AEX Index. While NYSE Euronext feels that this is a breach of their Intellectual Property rights.
82 TAG has observed this kind of argument before
within the US Options market (e.g. S&P 500 options) and finds it to be an interesting, yet difficult argument, which can be seen as legitimate from either perspective. NYSE Euronext has since filed suit against TOM alleging “breach of license” with respect to the AEX benchmark. We expect that this may be a long battle for both parties involved. As a new addition to this study, we will
specifically “break-out” the AEX trading activity and monitor the effects of the continued litigation on the markets. Although TAG acknowledges that the composition of the options product(s) are somewhat different, we believe that this will be a meaningful comparison in terms of continued fragmentation. For the month ended April 2013, we see TOM
with an approximate 18% market share for the AEX-based product, versus a healthy 81% share for NYSE Euronext. Towards the last week in April, moving into
May 2013, we observed a somewhat significant 2% increase to NYSE Euronext, most likely based upon feedback and/or concern from the April 24th announcement of the lawsuit. Surprisingly, in June 2013, we see a sharp
increase (~8%) in TOM’s AEX-based market share. This trend is coincident with TOM’s move to London, and potentially increased systems capacity, although this remains to be proven as fact. n
DISCLAIMER: All data derived by TAG from publicly available sources utilising proprietary tools. Although TAG believes the data to be correct, we do not guarantee its fitness for any purpose. TAG shall not be held liable for incorrect data under any circumstances. Any opinions expressed are solely those of the author.
TAG is an independent and unbiased provider of trade performance and market quality assessment for the securities industry –
www.tagaudit.com
Best Execution | Summer 2013
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