US Stock Options Smash Record
US stock options surpassed a record of 10 billion contracts traded in May 2018. This is according to data from the CME Group, which reached an all-time daily volume of 51.9 million options contracts on May 29. The OCC also cleared an average of 20,445,967 options contracts on the same day. These numbers are a big jump from the previous record of 4.6 million options contracts, which was reached in April.
CME Group reaches all-time daily volume record of 51.9 million contracts traded on May 29, 2018
CME Group reached an all-time daily volume record of 51.9 million contracts traded on May 29, 2018. This figure was up 8 percent from the previous year, and represented an increase of 34 trading days over 20 million contracts. In addition, open interest was up 17 percent.
During the first quarter of 2018, average daily volume (ADV) for CME Group was 22.2 million contracts. Open interest was 126 million contracts. The first-quarter total is up 23 percent from the same time last year.
Single-day records were set in Treasury futures and Weekly Treasury options. Eurodollar futures and Ultra 10-Year Note futures also set new highs. Also, single-day records were established in Classic T-Bond options and Fed Fund futures.
Increasing volumes in various asset classes led to a new record ADV for CME Group. Average daily volume was up 22 percent over the first half of 2017. However, volumes in the VIX options market were relatively meager.
OCC clears average daily volume of 20,445,967 options contracts
The Options Clearing Corporation, a subsidiary of the Chicago Board of Trade, broke several records in the past year. As of October 2019, the OCC had cleared a record 5.24 billion contracts, which was a 51.2 percent increase from the previous year. In addition, OCC is a major player in the securities lending industry. A recent study found that the OCC had a sizable share of the total loaned volume, with an average daily loan of $147.689 million. This was a 12.8 percent increase over December and a 22.8 percent rise over the prior month.
OCC’s latest and greatest boasts a record-setting year in terms of volume and total loans. As of November 30, the OCC’s year-to-date average daily volume was 225,811 contracts, a 3.6 percent increase from the prior year. On the other hand, the OCC’s average daily loan value increased by nearly a half a billion dollars, an impressive feat in a tough economic climate.
SEC proposes to limit rebates for traders
The Securities and Exchange Commission (SEC) recently unveiled a proposal designed to make the clearance and settlement of securities less costly and less risky. The proposal is based on the best practices from industry trade associations such as FINRA and the MSRB. The SEC is hoping to shorten the standard settlement cycle and improve liquidity in the process. In addition, the proposal would significantly expand the data available to the public.
For example, the proposal calls for a best execution rulebook, a new statistical measure of execution quality, and a monthly execution quality report for those firms carrying 100,000 or more customer accounts. However, if you were to ask most investors, they wouldn’t be impressed by the resulting human-readable report.
One of the proposed rules would be the first to require an individual investor’s order to be subjected to competition in an open and fair “qualified auction.” Similarly, a single-dealer platform or alternative trading system would be required to produce a monthly execution quality report. Additionally, the rule is designed to stimulate competition among large broker-dealers.
Short-dated options increasingly drawing professional traders and algorithmic institutions
The short-dated US stock options market has been attracting more and more professional traders and algorithmic institutions. This is due to the high demand for derivatives and leveraged investments. During the third quarter, more than 40% of the total volume of S&P 500 options were expiring within a day. In addition, trading in bullish “call” options decreased by 12%. Compared with the previous year, the year-on-year growth of US single-stock options was the third highest in the history of the market.
Although there were outsized increases in the options market in 2020 and 2021, the growth in the market was somewhat less than expected. It appears that the small-fry retail traders that drive this high level of demand for derivatives and leveraged investments are going to be on the flightpath.