Gary Delany, Director of European Marketing and Education for The Options Industry Council (OIC), Friday presented the findings of a study from late 2017/early 2018 at the Cboe Risk Management Conference (RMC) Europe that looked at European use of U.S. options products, both multi-listed options, as well as proprietary options.

 Key findings from the study include:

  • European order flow accounts for an estimated 9% of trading, similar to 2013.
  • Investments in U.S. equities are at record levels and have supported the greater adoption of strategies incorporating U.S. options, but low volatility and persistent price appreciation has limited hedging and overall trading activity.
  • European investors generally focus on income generation, capital appreciation and volatility strategies.
  • Q1 2018 volatility increased demand from European investors.
  • U.S. exchanges devote limited marketing resources in Europe, with the exception of Cboe Global Markets, which has seen significant interest in its proprietary VIX® and SPX options.
  • Static volumes limit efforts by U.S. broker-dealers to target European accounts. Global banks see opportunities, especially with high-net-worth investors.

The study was based on the findings of a survey conducted by Burton-Taylor who completed 36 interviews with U.S. and European market participants from 31 different firms that provide services for U.S. listed options trading. Thirteen of these firms were located in the U.S., while 18 firms were located in the U.K or continental Europe. The interviews were completed prior to the February 2018 market volatility.

European Order Flow By Segment

When looking at European order flow by segment, the study found that hedge funds account for the largest share of European order flow, with demand influenced by both size and strategy.

eu01

Biggest Changes Over Last 2 Years for U.S. Equity Options Markets

The study also looked at the biggest changes over the last two years for U.S. equity options; 71.4% of the respondents said that “more demand” was the biggest change.

eu02

 

Opportunities for Growth

They study found that demand for U.S. options exposure waned as volatility declined in the 2013 to 2017 period, resulting in less hedging activity due to a lesser sense of urgency. However, survey respondents noted many opportunities for growth, including:

eu03

What Would Increase European Demand?

The study also looked at factors that would increase European demand for U.S. equity options, with 30% of respondents citing “better understanding” as the key factor. Other factors included:

eu04

The full study is available at www.OptionsEducation.org