Ports in the Storm: US Options Exchange Rankings

 “It’s not bragging if you can back it up.” – Muhammad Ali


While so many seem to be pleasuring themselves with the Tiger King, some of us continue to geek out with the latest data. Now, with March so freshly in the review mirror, certain monthly and quarterly data updates are going to be among our first chances to benchmark the significance of what has just happened in capital markets.

We started with a focused comparison of the volatility patterns of the GFC period to the unfolding CVP period here and here, and then detailed the first trading casualties of that volatility here, here and here. Below, is our latest visual of that volatility comparison, where we are beginning to break down the components of volatility represented by the gap and range

Among the more fascinating aspects of this perspective is the illustration that there have been 8 volatility spikes with intraday ranges greater than 20 VIX points since January 2008, and the greatest of these occurred on February 6, 2018; a point that our recent volatility analyses had yet to detect.  However, perhaps more fascinating – and perhaps even somewhat alarming – is the fact that 50% of those vol spikes (>20 VIX points) occurred in March 2020 over 12 trading days…

This concentration of market fear and stress is part of a cascade of impacts that cause volume spikes in cash markets which in turn cause volume spikes in derivatives markets. (For instance, both CME and CBOE have already reported all-time highs in contract volumes for March.) This relationship is captured in the chart below:

So, with these factors as backdrop, I thought it would be useful to dig further into some of the OCC data to illustrate where the March rush of options volumes showed up, given the level of fragmentation there. In the chart below, Alphacution presents US options exchange market shares as measured by total contract volumes for all products (equities, indices and all other) for the period January 2018 through March 2020. Note that the conditional formatting is independent for each exchange.

Here – beyond the migrations of market shares across 16 US options exchanges over the past 2 years – we want to focus in on the figures for March. Generally, the “greens” are increases and the “reds” (and “oranges”) are decreases in market shares. Specifically, ARCA, BATS, EMLD, and NSDQ show the most notable upticks in market share during a period of intense volatility and volumes – while PHLX, ISE, MIAX, GEM, C2 and NOBO shed market share for the month. Of particular note, MIAX’s Emerald exchange, the youngest of the 16, stands out by facilitating 27.8% of its total historical volume during March 2020…

The next chart, which illustrates the month-over-month (MoM) change in market share – and applies the conditional formatting evenly across the entire data sample, illustrates the shifts that occurred in March more starkly.

Here, we see the most prominent upticks in flows through BATS, EMLD and NSDQ – with notable decreases at PHLX, MPRL, C2, and GEM. With that, the chart below shows the full ranking of MoM market share shifts with and without the CBOE-dominated index volumes:

Lastly, when we attribute each exchange to its parent group and aggregate the market share shifts, the rankings look like this:

This analysis puts us one step closer to making clearer connections between the players, the exchanges and the volumes.

Until next time, stay safe out there…

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By | 2020-04-09T16:45:28-04:00 April 2nd, 2020|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.