CBOE Holdings is expected to acquire Bats Global Markets, revealing the financial industry’s growing outlook in exchange traded fund options trading.
Ed Tilly, chief executive of CBOE, argued that the new combined efforts of CBOE Holdings and Bats Global Markets would create the best opportunity to take advantage of a rapidly shifting market demand for structured products, reports Philip Stafford for the Financial Times.
ETFs with options contracts that trade on multiple exchanges was “the fastest-growing, really the only growing” part of the options market, Tilly told the Financial Times.
As the ETF universe continues to grow and traders from the average retail to institutional side adopt the investment vehicle, options on ETFs are quickly becoming a growing segment of the market.
“Options on ETFs would logically grow because ETFs are becoming such a big part of the US equity market,” Chris Concannon, Chief Executive Officer of Bats Global Markets, told FT.
While some are wary that the combined efforts of the two firms could create increased risks or stability issues in the financial system, Bats believes the merger could enhance efficiency.
“Having a robust and liquid derivatives market is critically important to the underlying security itself. People fail to realize how important the derivatives market supports the underlying market,” Concannon told FT.
Bats controls about a quarter of ETFs’ total trading volume in the U.S., which provides CBOE a significant foothold in the ETF business. Bats is one of three exchanges that provide coverage for the $2.4 trillion U.S.-listed ETF market, competing against the dominant NYSE Arca exchange, which lists ETFs worth $2.23 trillion, and Nasdaq Inc.
Bats has aggressively expanded into ETF trading with fast trading technology as regulatory and technology changes diminished profits in other areas. CBOE, on the other hand, mainly trades options linked to the funds. With the Bats acquisition, CBOE is passing over its trading software for Bats’ technology.
CBOE Holdings plans to purchase Bats Global Markets for $3.2 billion. The two are preparing to put their deal agreed in September before shareholders in January, 2017 after passing the U.S. antitrust approval process last month. The two executives contend that the merged company could attract new investors from retail and institutional sides to each other’s products.
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