High frequency trading to transform equity options market, report says

12 September 2011

High frequency trading (HFT) is expected to “penetrate” Europe’s equity options market following the implementation of the Markets in Financial Instruments Directive (MiFID), a new study has said.

According to the TABB Group’s European Equity Options Market Structure: Opening the Door to High Frequency Flow study, incoming regulation, exchange consolidation and increased competition are all expected to be part of this new trading landscape.

MiFID will lead to the implementation of organised trading facilities (OTFs), which are expected to act as easy points of access for HFT liquidity providers.

Will Rhode, senior analyst at TABB Group, said in the report: “The days of manual dominance are coming to a close in Europe.

“With the advent of more electronic trading platforms will come new market participants, like high frequency liquidity providers with the power to make Europe's equity options markets deeper, more competitive, more tightly priced and far faster than ever before.”

The report listed other barriers to the transformation including the predominance of vertical clearing silos and a fragmented IDB landscape.

Previous research by the TABB Group showed that ten per cent of US listed options volumes stem from European investors.

By Jim Ottewill

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