High-Frequency Trading Leaders Forum 2011

As reported by Financial News’ Tom Osborn, in a study on the European equity options market, Will Rhode, an analyst with research firm Tabb Group, said a move to electronic trading would allow high speed trading firms to implement their electronic trading strategies in a broad, liquid options market for the first time.

High-frequency trading is a form of super-fast trading that uses quantitative strategies to execute trades in a fraction of a second and, in some cases, exploits tiny price discrepancies across trading platforms.

Mifid II legislation will push much of the over the counter derivatives market onto electronic platforms, known as organised trading facilities, with mandatory clearing for many standardised contracts. Equity options – which offer investors the right to buy or sell a company’s stock for a pre-agreed price at a future date – will fall into this category.

Tabb calculates annualised volume growth in the European options market to be 5% since 2002, against 20% in the US. At present, only a quarter of European options trading takes place on exchange, with much of the rest traded via traditional phone brokers.

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