SunGard Identifies Ten Trends for 2010 in Listed Options Trading and Risk Management
Wayne, PA - 18 February 2010
Russ Chrusciel, product manager for SunGard’s MicroHedge solution for listed options trading and risk management, said, “Since the first exchange listed options were traded, options market participants have led the way in innovative techniques for pricing, risk management and arbitrage. The options industry will continue to drive innovation in 2010, as participants continuously adjust their processes and strategies in the midst of an uncertain regulatory environment and conflicting economic forecasts. Traders, risk managers, quantitative analysts, and IT staff will be faced with the challenges of acquiring the technology and human capital needed to better position themselves for profitability over the next few years."
SunGard’s ten trends shaping listed options trading and risk management in 2010 are:
1. Demand for greater transparency and efficiency across quantitative analysts, traders and managers will drive the need for centralized information to help firms base their decisions on the same set of assumptions, as well as reduce trading errors and enhance profitability.
2. CBOE’s Volatility Index (VIX) will secure its place as a key market indicator, as continued uncertainty with market regulation and mid-term elections in the U.S. will contribute to higher index levels later in the second half of 2010.
3. Options bid-ask spread will continue to narrow in exchange market-making due to increased competition for market share among the options exchanges.
4. Co-location and networking at options exchanges will be important, but firms will carry this out selectively in order to focus their resources on the exchanges where they have the strongest competitive advantage.
5. High-frequency and proprietary trading firms will drive innovation as they aggressively re-invest in technology and intellectual capital.
6. Risk managers will seek options compliance and risk analytics solutions that complement one another by allowing for the ability to share information and minimize costs.
7. Cost and efficiency pressures will yield greater adoption of Software-as-a-Service (SaaS) and hosted solutions by options trading firms to help lower barriers to entry and reduce maintenance costs.
8. The impact of the SEC’s short sale rules on options trading strategies will dampen volume and increase compliance needs.
9. Tighter integration will be sought between front- and middle-office options risk management to more quickly uncover troubling positions.
10. Greater competition driven by two new options exchanges (BATS and CBOE's C2) will further spread out option liquidity and trading volume by year-end, leading to not only tighter bid-ask spreads across the options landscape, but also improved client care and services as exchanges vigorously seek new ways to retain their existing clients.
Dana Wiklund, research director, risk management at IDC Financial Insights, said, “Transparency relies on the visibility of information to understand what analytic processes are used to aggregate findings about risk, whether they are internal or external to the organization, and whether that risk is a credit risk, a market risk or an operational risk. Financial institutions need to be able to take disparate sources of data and use them efficiently in order to place usable facts quickly into the hands of decision makers.”
Michael Horn, head trader at KCM Options, LLC, a Chicago-based hedge fund specializing in trading equity and index options, said, “SunGard’s MicroHedge assists us in maximizing our options trading profits while keeping an eye on risk. Our traders prefer MicroHedge’s front-end for analyzing trading opportunities, and have found MicroHedge’s API to be an essential tool in connecting to our proprietary trading tasks. The new analytics features will further help us to strengthen our risk management.”