Innovative technologies creating optimism and opportunity for the U.S. options industry
"Alexa, please roll my NDX August option position into September and give up .05 from the midpoint Theoretical value. And please let me know my delta, gamma and theta after I get filled.” Crazy? Maybe, but wasn't it crazy 15 years ago to think technology could provide quotes for one participant in over 900,000 series at one time?
Over its short 44 year life, the options industry has gone through periods of significant change, each time taking volume to new highs, with added risk protections, an improved user experience, and improved resiliency. Today there is an opportunity for changes in market structure to interface with creative new technology which will position the industry for growth and facilitate a strong leadership position for those exchange operators who can innovate.
Technology is our secret weapon. Ok, perhaps not a secret, but certainly a weapon for growth in the options industry. For many years, displayed liquidity in the U.S. listed options industry suffered. Quotes were advertised, but would quickly fade when participants attempted to trade against the displayed quote. As the 21st century began, technology, along with new rules, allowed all participants to instantly post orders and quotes to any listed series. Those changes resulted in unprecedented growth.
Using the history of technology as a roadmap - and as the owner of the first all-electronic exchange (Nasdaq), the first all-electronic options exchange (ISE), and also the oldest exchange in the U.S. (PHLX) - Nasdaq is uniquely positioned to do our part in modernizing the market structure in options today, while leveraging our technological expertise and innovative culture to improve the options product for investors, and our clients. We believe this necessitates a two-pronged approach. First, we are committed to transparent collaboration with the other options exchanges to concentrate on issues like modifying trade reporting to be much more transparent about the characteristics of a trade and to embark on an efficient strike management program that will delist unnecessary strike prices, while limiting frivolous strike additions. Technology will play a key role in this endeavor that will result in greater transparency and reduced systematic risk in the ecosystem. The industry has additional issues to resolve, and these tasks should keep the momentum moving towards positive change.
Secondly, Nasdaq will leverage mobile technology, machine intelligence, and other growing trends to improve the experience for options participants. Listed options are a great vehicle to manage risk and enhance yield, and technology plays a strong part in the promotion of that story. From LinkedIn to Facebook, technology in social media provides an opportunity to inform investors about what is happening within the industry and on our own exchanges. A missive that used to take weeks or months to deliver though marketing collateral is now done in an instant from various sources, all due to the improvements in technology and the evolution of social platforms.
With respect to Machine Intelligence, we will continue to develop innovative products like the Nasdaq Analytics Hub. This will allow investors to leverage Machine Intelligence to extract meaningful information while providing actionable insight with respect to investment decisions.
Technology affords us the ability to be both optimistic and excited about the U.S. Options industry and we are committed to continuing to innovate collectively and independently to foster continued growth. I am not sure how soon Alexa, or Siri, our perhaps our own ‘Adena’ will be sending in an options order, but we have great opportunities ahead of us.
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