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Ade Cordell , president , Cboe NL
in a cost-effective and consistent manner .
While we are aware we can ’ t simply replicate our equities model in derivatives , we can leverage some of the factors that have made it a success . Responding to client demands to positively disrupt a market and create a better , pan-European structure that benefits all participants is a principle that we apply to any asset class .
Second , being part of Cboe since 2017 has given us the opportunity to learn and benefit from the group ’ s deep expertise in the US equity derivatives market . Cboe has a long history of innovation in derivatives as founder of the listed options market in the US and has created numerous successful products . We ’ ll
David Howson , president , Cboe Europe
be using that expertise and repurposing Cboe ’ s US equity derivatives technology and market model as we develop our European market .
Third , there is latent client demand : We have had requests from both US and European market participants to bring a new derivatives market to Europe to help manage their equity exposures . There is also capacity in the market for new markets and products with major operational projects including Mi- FID II implementation and Brexit preparations completed .
Last , but by no means least , is our recent acquisition of EuroCCP , the leading pan-European cash equities clearing house . This offers us the clearing solution for our derivatives platform .
“ Diversifying into the derivatives market is something we ’ ve always been working towards . We now have all the ingredients necessary to make that move with a unique proposition .”
DAVID HOWSON , PRESIDENT , CBOE EUROPE
Can you tell us more about the opportunity you see specifically in equity derivatives ? Ade Cordell ( AC ): We believe there is an opportunity to bring competition to and grow the equity derivatives market in Europe . If you look at Chart 1 , you can see striking differences in the size of the equity options markets in the US and Europe . Even though the European economy is similar in size to the US , the US equity options and equity index market has grown rapidly while Europe ’ s has stagnated .
We believe there are a few reasons for this lack of growth . The first is the fragmented nature of the market and limited amount of competition in European equity derivatives outside of single stock futures and options . Europe ’ s index market is essentially domestic – if investors want to trade German equity index derivatives they do so on the German exchange , if they want to trade Italian equity Index derivatives they use the Italian exchange and so on . Confining the market to national boundaries in this way has restricted its ability to grow and has also created inefficiencies for participants . In order to trade Europe ’ s key index products , participants currently need to connect to multiple venues and clearing houses , adhere to different pricing structures , and use different market models . That creates inefficiencies , at both a trading and clearing level .
Furthermore , the current market structure has also hindered growth , dominated as it is by a pre-arranged block trading model , or often referred to as a call-around market . Larger transactions are agreed off-exchange and reported on a delayed basis , resulting in limited on-screen liquidity . We have
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