What is the options market?
To provide normal conditions for the circulation of securities and to control the legality of conducted operations, stock exchanges exist around the world. The options market is an integral part of any such organization, since they ensure the conditions for trading all types of issued securities, including options.
What is the options market?
As the name suggests, the options market is a place where options are traded. Most often, this concept refers to an organization that:
1) Provides market participants with a centralized place to carry out their activities.
2) Gives traders and dealers up-to-date information on asset behavior in the market.
3) Operates in accordance with international legislation regulating options trading.
4) Guarantees the execution of transactions.
5) Provides an arbitration court with the right to cancel a transaction in case the rules of its execution are violated.
6) Monitors compliance with the code of conduct of trading participants.
7) Ensures transparency and openness of all transactions.
The options market is not only a specific building, but also a more abstract concept. For example, this term often refers to the trading itself, its process, the relationship between a dealer and a trader, and so on.
The history of the global options market began in 1820, when the first stock options appeared on the London Stock Exchange. The first market independent of global trading was the Chicago Board Options Exchange. It opened in 1973 and to this day provides the largest options turnover in the world.
Options market in Europe
It is not surprising that the first options exchange appeared in Europe, since options themselves began to be used precisely in this part of the world. Over time, a specific securities model even emerged, which was called European. It consists in the absence of the trader’s right to early expiration.
Large options turnover takes place in Frankfurt, Madrid, and Zurich. At the moment, there are 22 exchanges operating in the United Kingdom that deal with options trading. These also include exchanges in Johannesburg and Sydney. The largest of all European stock exchanges is located in the capital of the United Kingdom.
The London Stock Exchange (London Stock Exchange, abbreviated LSE) deals with the trading of not only options, but also all other types of securities. It is one of the largest in Europe and in the world. The exchange provides approximately 40% of the turnover of all options of major global companies.
Options market in America
In 1973, the largest stock exchange in the world, the Chicago Board of Trade, opened a subsidiary. It was named the Chicago Board Options Exchange and began to provide trading conditions exclusively for this type of security.
Its narrow specialization allowed the market to very quickly capture more than 50% of the total global options turnover.
Options on stock indices (indicators of index basket prices) are especially popular on the market. At present, the CBOE (Chicago Board Options Exchange) accounts for 91% of the total turnover of securities with such an underlying asset.
Options market in Russia
The largest options broker in Russia is the Moscow Stock Exchange. It ranks 17th among all global markets engaged in options trading. The main trading volume consists of currency and commodity options.
The Moscow options market is interesting in that this fairly young enterprise has a very rich history. It was created through the merger of the Moscow Interbank Currency Exchange and the Russian Trading System Exchange, which had existed since 1992 and 1995 respectively. The first Moscow exchange trading venue appeared back in 1839.
It is surprising that despite having its own trading platform, options of major Russian companies are still traded on the London exchange.