The rapid expansion of options markets in recent years has been driven by a number of factors, not least of which is technology.
Technology helps institutional firms access options liquidity, helps brokers handle and route trades more efficiently, and helps online platforms attract and retain retail market participants. But for all firms in the options market ecosystem, it’s not just about adopting technology, it’s also necessary to create the right processes around the technology.
Technology’s role in options market development was discussed throughout this week’s Options Industry Conference in Palm Beach Gardens, Florida, especially on the Wednesday afternoon panel Emerging Technologies, Advanced Analytics and Automation in Options Trading: Transforming Strategies and Market Dynamics.
While technology headlines typically focus on emerging technologies such as generative artificial intelligence, Steve Crutchfield, Head of Business Development at Chicago Trading Company, drew a distinction between those “new and exciting things,” and the workhorse technology that powers options markets every day.
Market makers care that their systems are always up and running, correctly and in a monitorable way, with reliable real-time price feeds and market data delivery. “There is a whole spectrum of use cases” for options market technology, Crutchfield said, as market makers compete with each other to “make every little step in the pipeline faster and more efficient.”
Nate Pomeroy, Principal, Wolverine Trading, said the technology focus is on the trade order management lifecycle, with the goal of 100% reliability and real-time analytics.
Joe Mazzola, Director, Trading & Education at Charles Schwab, said increased adoption of mobile trading has influenced Schwab’s technology strategy, as the firm has developed and rolled out “tools that meet clients where they want to be met.”
Specifically, for clients that have adopted portfolio margining, technology tools help identify risk points, and technology has also helped Schwab expand its educational offerings.
But more than anything, technology needs to keep systems running even on the heaviest volume days. “Job #1 is scalability – we have to be online,” Mazzola said. “Clients don’t move to a competitor for a nickel difference in commission. But they’ll move if you’re down for a day.”
When panel moderator Ivan Brown of IEX Options asked about market structure, Pomeroy noted the fixed costs for market makers needing to connect to all US options exchanges, of which there are 18 with two new more pending. Beyond connectivity, the proliferation of exchanges creates more cost and complexity around market data, according to the panel.
AI has been a buzzword in options and other securities markets, and the technology is adding value, but not really yet in futuristic ways. Crutchfield said four-fifths of AI applications is the automation of mundane tasks, such as tech issue triage and first passes at compliance and customer service response. “There hasn’t been as much dedicated to sexy applications,” he said.
Lastly, with regard to the future one to three years out, Mazzola said he sees more growth in short-dated options, including for single stocks. Crutchfield said there may be consolidation in the proprietary trading space because of significantly increased cost structures.
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