Optiver: The Equity Options Market Structure Needs an Update

CHICAGO--(BUSINESS WIRE)--Optiver, a leading market maker in US equity options, today released a new thought leadership series that advocates for an update of the US equity options market structure. In conjunction with the release of these papers, the firm issued the following statement:

Optiver has followed with great interest, the SEC’s recent remarks on payment for order flow (PFOF) and the agency’s review of the equity market as we believe that transparency and fair competition are the foundation for a healthy market. We applaud the SEC for highlighting its concerns about market structure issues, which often unfairly rewards wholesalers who route retail flow with an affiliated market making arm.

As a leading global market maker, we work to make markets fairer, more transparent and efficient for all market participants, both retail and institutional.

However, the equity market is only one part of the issue. The significant concern in the US equity options market is the underpinning market structure, which favors the wholesalers with an affiliated market making arm. A review of the public 606 order routing form disclosures from the eight broker-dealers that are most active in the equity options market showed that just four firms collectively route an estimated 80% of the retail market. These firms also account for 84% of the 40,000 specialist appointments on 11 exchanges. Optiver acknowledges the potential benefits that wholesalers with affiliated MMs can provide to retail investors; MMs have the expertise in option pricing while wholesalers provide the infrastructure to execute orders on behalf of retail brokers. This relationship, however, can only deliver the maximum benefit if there is genuine competition for these orders at the exchange level.

Our areas of concern within the equity options market structure are:

• Price improvement mechanisms that often do not result in best execution,
• An asymmetric fee schedule that helps fund PFOF, and
• Specialist appointments that drive internalization of equity options trades.

In its ongoing review of the impact of technology on market structure, we urge the SEC to broaden its examination to consider the impact of these and other practices not only on the U.S. stock markets, but also on the equity options market.

For additional information on suggested enhancements to the US equity options market please visit Optiver’s Insights page.

About Optiver

Optiver is a leading global electronic market maker with nearly 1300 employees working from offices in Amsterdam, Chicago, Sydney, Shanghai, Hong Kong, Taipei and London. Through pricing, execution and risk management, the firm provides liquidity to financial markets using its own capital, at its own risk, trading a wide range of products: listed derivatives, cash equities, ETFs, bonds and foreign currencies. Its independence allows it to objectively improve the markets by pioneering its own trading strategies and technology systems.