If You Want To Be Rich, We Can Help You! | BATS Options

Until last week, there were seven major equity options exchanges in the US: Chicago Board Options Exchange; International Securities Exchange; Philadelphia Stock Exchange; New York Stock Exchange; American Stock Exchange; Nasdaq; and Boston Stock Exchange.

But now an eighth exchange has joined the fray. BATS, which over the last few years has captured a significant slice of the US Equities market (more than 10 percent in fact), now hopes to do the same with equity options. But with such a crowded marketplace already, will it succeed?

At a recent high frequency trading conference in London, we gauged opinion on this question and the general consensus seems to be that BATS is likely to be successful with this new initiative. BATS has good technology for trading electronic markets and options trading volumes are on the increase, despite problems elsewhere in the economy.

On of the ways that BATS hopes to compete with the bigger players in this space is through its pricing structure, which is fairly aggressive.

Like some other electronic exchanges, BATS will offer two levels of pricing and fees, one for “market takers” and the other for “market makers”. Market makers will be offered rebates on their fees for ensuring liquidity is there.

Pricing is very simple and follows a flat structure. Market takers pay 30 cents per contract, market makers receive a rebate of 20 cents per contract.

By offering this low pricing, attractive rebates and such a simple pricing structure, BATS is hoping that the exchange will appeal to high frequency traders, who now account for more than 50% of market volume in the US, according to industry estimates.

The electronic trading platform is pretty much the same as the one that BATS uses for equities, so it should be relatively simple for member firms to build their interfaces and connect in. If they are already linked up to the exchange for equity trading, very little work is required to modify their links for trading options.

But it is probably BATS’ illustrious ownership that will, more than any other factor, ensure the success of the new offering. Major shareholders include Credit Suisse, Morgan Stanley, Citigroup, Goldman Sachs, JP Morgan and Getco, all of whom will want to provide liquidity to reap a decent return on their investment.

We anticipate that BATS will seize some significant volume from the incumbents.

Related posts:

1. Stock Options Trading Stock options trading is a kind of security trading that involves selling an...
2. The Basics of the Stock Market Growing up I used to tell my mom how much money my baseball...
3. Natural Gas ETF vs. Natural Gas Mutual Funds Today’s natural gas market offers investors many ways to trade this market. But...
4. Why Trading On The Forex Market? Some of you have probably already heard of the forex market or foreign...
5. Practice Stock Accounts Are Easy to Set Up It is a simple matter to set up your own stock trading account...