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16 November 2012

Shedding Light on the Fragmented Options Trading Landscape

To help market participants understand how options liquidity is moving around the exchange landscape, TABB Group resumes publication of the newly redesigned Options LiquidityMatrix, which provides the financial industry with comprehensive statistics on options market execution quality and trading volume across the 10 options exchanges.

Options exchanges are locked in a battle for order flow. One critical way they compete is through constantly shifting fee structures and trading protocols designed to attract order flow and increase their market share. The result is an increasingly fragmented trading landscape, with liquidity constantly shifting among the 10 existing options exchanges. And with two more exchanges on the drawing board, this fragmentation promises to get worse.

Options fragmentation leaves market participants with a significant challenge in identifying how market share is shifting among the exchanges and how their market quality is performing over time. It is not only about which exchange has the most market share, however, as each exchange targets different types of order flow through its own particular rule set.

Newer exchanges are using price/time market models and maker/taker pricing to attract smaller and more aggressive trading activity, while incumbent exchanges are using pro-rata market models with various pricing schemas to attract more traditional order flow. The variations of market and pricing models are mind-numbing, which leads many in the industry wishing for the good old days when options were traded at just a handful of exchanges. (But that is fodder for my next report, which will focus on the challenges facing today’s options market makers. Stay tuned …)

The complexity of options market structure has driven TABB Group to work with the industry to develop data and statistics that can be used to better understand how liquidity is moving around the exchange landscape. And to that end TABB Group is pleased to announce that we will resume monthly publication of the Options LiquidityMatrix beginning with the October 2012 report. Using data and analytics provided by Hanweck Associates and the OCC, the report provides the financial industry with comprehensive statistics on options market execution quality and trading volume across the 10 options exchanges.

The Options LiquidityMatrix provides industry professionals with detailed volume and market share statistics for each exchange, both for total options trading and for option symbols in the SEC Penny Pilot program. Charts and data tables are broken out for all options and for Penny Pilot issues in the report. All statistics are derived from direct OPRA data feeds and include all trade activity reported by OPRA for each day. Quote statistics include trading activity during normal trading hours. The data table and charts in the report include:

  • Options volume for each exchange on a year-to-date and monthly basis.
  • Options market share for each exchange on a year-to-date and monthly basis.
  • Options market quality for penny options classes and all options traded by exchange:(1)
  • Average bid/offer spread by exchange
  • Average bid/offer size by exchange
  • Percentage executed at bid/offer by exchange
  • Percentage of time at best bid/offer by exchange
  • Percentage of time at best bid/offer and greatest size by exchange
  • Number of options series traded by exchange
  • Average trade size in number of contracts by exchange
  • Average trade value in dollar amount by exchange

The Options LiquidityMatrix will be published and distributed each month to TABB Group’s Research Alliance Derivatives clients, with delayed distribution through TabbFORUM, the 13,000-plus member online global capital markets community. The October 2012 report can be downloaded here.

The data for the Options Liquidity Matrix is sourced from the OCC and the Premium Hosted Database (PhD), a joint offering from Hanweck Associates and the International Securities Exchange (ISE). PhD is a hosted tick database offering historical data and analytics as a managed service. It offers full OPRA data, including all quotes and trades from all exchanges, level-one data, implied volatilities and Greeks, and full corporate actions. Additional information about PhD is available at

I welcome comments and suggestions on any improvements or new data that you would like to see incorporated in the report. Please send me an email at, or feel free to leave a comment below.

1. Definitions and methodologies for the execution quality metrics used in the Options LiquidityMatrixTM are detailed in the report.

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