Liquidity concerns drive use of US options
US-listed options are becoming increasingly
used by European investors due to difficult trading conditions in their home
markets, according to research from consultancy TABB Group.
Options have become important for European
investors in their hedging strategies, TABB said, but the European market is
failing to adequately serve their needs.
There is a lack of opportunity in domestic
markets and pressures on OTC-trading caused by incoming regulation, including the
Markets in Financial Instruments Directive (MiFID), European market
infrastructure regulation (EMIR) and Basel III.
“European investors say they’re facing
significant challenges when hedging their portfolios of equity securities
because the domestic European markets are not providing them with sufficient
liquidity and, under the new MiFID, EMIR and Basel II regulatory landscape, the
OTC markets have become less economically desirable,” said Andy Nybo, head of
derivatives research at TABB and author of the report.
In comparison to Europe, the US-listed
options market is significantly larger with far greater liquidity, the report
said. European investors are also holding an increasing number of US equities,
a total of US$1.9 trillion, a 21% annual increase since 2009.
Nybo added: “As the economic recovery in
the US continues to gather steam, European investors will continue to allocate
assets towards US exposure, which will include the use of options to manage
risk and implement directional strategies.”
As well as being able to deploy sizeable
trading strategies through the use of index options, European investors
accessing the US market can also benefit from significant liquidity in
single-stock and ETF options, which may not be available in their home market.