US Options Exchanges Watchful On Signs Of IPO Rebound
12 Novembre 2010 - 4:13PM
Dow Jones News
The U.S. stock-options industry is poised to benefit from a
long-awaited revival in new stock offerings, according to senior
exchange executives.
A stagnant IPO market and a rise in company delistings and
reverse stock splits has reduced trading opportunities for options
investors, and contributed to a broader slowdown in growth across
the industry. Lower volatility and a pullback by retail investors
in the wake of the May 6 "flash crash" has also weighed on the
sector.
A pickup in offerings could play a part in reinvigorating the
market.
"This is an element I expect to kick in as the broader market
turns around," said Gary Katz, chief executive of the International
Securities Exchange. "These are all new products for the options
market to trade."
U.S. stock options trade has expanded rapidly over the last
decade, with years of double-digit trading volume growth
interrupted only briefly by the bursting of the tech-stock bubble
and the Sept. 11, 2001, terrorist attacks.
In 2009, fallout from the financial crisis saw options trading
activity slow to a rise of just 0.8% from 25% the prior year and
41% in 2007, as major investors scaled back dealings. The Options
Clearing Corp., which handles trades for all U.S. stock option
markets, continues to predict 2010 will be the eighth consecutive
record year, with volumes through Oct. 31 up 5% over 2009
levels.
Initial public offerings this year have rebounded. The 88
U.S.-issuer deals so far in 2010 are more than double 2009's total,
according to data firm Dealogic. In 2008, only 32 U.S.-issuer IPOs
were done, about one-sixth of the 2007 number.
In 2007, 52 new options were launched on stocks that debuted
that year, amounting to 8.9 million contracts traded--about 0.5% of
total equity options volume for 2007, according to figures
tabulated by the ISE. Trading in those contracts more than doubled
in 2008.
This year has brought the debut of 39 options on newly listed
securities, amounting to about 877,000 contracts changing hands
year-to-date, according to the ISE. A continued decline in overall
market volatility--fuel for risk-management tools like stock
options--and a broad reduction in individual investor participation
continue to weigh on options-trading volume beyond a dearth of new
stock listings.
But fresh faces can become overnight stars. Within a year of its
debut on the Nasdaq Stock Market, Google Inc. (GOOG) ranked as the
most popular option on a single security in the U.S., accounting
for nearly one in every 50 contracts bought or sold in 2005, its
first full year of trading.
Options on the SPDR Gold Shares, the biggest physical gold fund
in the world, were the 13th busiest contract last year after its
2008 introduction, representing about 0.95% of all trading,
according to figures from the Options Clearing Corp.
Meanwhile, the market has lost some well-loved names. Options on
investment banks Bear Stearns and Lehman Bros. Holdings--the latter
among the 20 most heavily traded in 2008--were wiped off traders'
screens as delistings from U.S. exchanges surged. Some companies
pursued reverse stock splits and other measures to prop up share
prices and maintain listing requirements.
"If you shrink the cash market, by nature you're going to shrink
the derivatives market," said Edward Boyle, head of NYSE Euronext's
(NYX) U.S. options business. "If capital comes out of the market
long term, it will likely impact options trading as well."
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com
--Lynn Cowan contributed to this article.
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