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19th March 2024 | Press Releases

Market structure holding back growth in European listed derivatives markets

Download full report here: https://www.acuiti.io/optimising-market-structure

London – 19 March 2024: The fragmentation of listed derivatives market in Europe is creating significant additional cost and complexity and stifling growth, a study from Acuiti has found.

Listed derivatives, and in particular options, markets in Europe have seen significantly lower growth than those in the US over the past five years. In 2023, European equity options markets posted volumes 23% lower than their high in 2012. By contrast, US options markets reached record levels in 2023, growing by more than 200% since 2012.

Optimising Market Structure in European Derivatives is released today in partnership with Cboe Europe Derivatives (CEDX) and based on a survey of senior executives at 57 firms operational in European and US listed derivatives markets.

The survey found that a relative lack of retail trading and the fragmentation of market structure were the key reasons market participants thought growth was slower in Europe when compared to the US.

That fragmentation is also increasing costs for participants with 88% of respondents saying that US options market were cheaper to trade than those in Europe.

Other key findings are:

  • 71% of respondents say they would prefer to execute their options trades on-screen but are prevented from doing so due to prevalence of liquidity in OTC markets
  • Half of respondents to the survey allocated more flow other regions as a result of the costs and inefficiencies of European listed markets
  • One fifth of survey respondents expect a contraction in European listed equity derivatives markets over the next five years, unless there are changes made to market structure

The report found that market structure was a key reason behind the fragmentation. Unlike in the US, where multiple venues clear into a single CCP, European exchanges typically operate a vertical silo model.

In order to trade exposures across Europe, firms are required to onboard with multiple venues and clearing houses, develop the infrastructure to handle multiple pre and post-trade workflows, as well as pay market data fees and post collateral across multiple venues.

In order to improve the investing experience in Europe efforts must be made to improve the options market across Europe by promoting on-screen trading, attracting retail investors, and reducing fragmentation,” says Ross Lancaster, head of research at Acuiti.

“Open access was a key part of the MiFID regulation but has been reversed by EU rule-makers. Whether by mandate or by innovation, Europe has the potential to foster and encourage innovation through a more open market structure. This would boost competition and lower costs for participants.”

Iouri Saroukhanov, Head of European Derivatives, Cboe Europe, said: “This research demonstrates that Europe’s options markets aren’t working optimally for investors as a result of a fragmented market structure, poor capital and margin efficiencies and the predominance of OTC trading.

“Cboe Europe Derivatives (CEDX) has been designed to tackle all of these problems, by utilizing Cboe’s US options leadership position and our strong European cash equities footprint in trading and clearing. We’re aiming to grow European options markets again by promoting on-screen trading and a pan-European ecosystem, that simplifies access to and dramatically reduces costs for those wishing to access this market.”

Download full report here: https://www.acuiti.io/optimising-market-structure




For more information, contact Nastja Konic at Acuiti

Tel.: +44 (0) 203 998 9190

Email: nastjakonic@acuiti.io


About Acuiti

Acuiti is a management intelligence platform designed to provide Senior Industry Professionals in the Derivatives Industry with high-value insight into industry-wide performance and business operations. Acuiti provides a platform through which our exclusive network of Senior Industry Executives can share and source information on day-to-day operational challenges, providing them and their management teams with increased transparency and in-depth analysis to make more informed decisions and benchmark company performance. Financial Institutions benefiting from our services include Banks, Non-bank FCMs, Brokers, Proprietary Trading Firms, Hedge Funds and Asset Managers.


About CEDX

Cboe Europe Derivatives (CEDX) is pan-European derivatives marketplace which enables participants to access a vibrant equity derivatives market through a single access point, creating efficiencies in trading and clearing. Its mission is to build a modern pan-European marketplace designed to grow the European equity derivatives market overall and create new opportunities and efficiencies for market participant to express their views and manage their equity exposures. CEDX launched in 2021 with index derivatives based on key single country and pan-European indices and recently expanded into single-stock options.