Retail surge preventing over half of institutions from meeting options trading objectives, study finds

Study by Coalition Greenwich found that 54% of institutions said the retail activity surge was negatively impacting their ability to achieve their objectives in the options markets.

A surge in retail trading activity has caused US options trading volumes to reach record highs and is blocking institutions from achieving their investment objectives, a study by Coalition Greenwich has found.

In its report, Coalition found that over half of institutions said the influence of retail in the options markets was negatively impacting their ability to meet their objectives amid surging volumes last year including six record-breaking months through to November.

It found that by the end of November last year, volumes had exceeded the year prior’s record-breaking 7.52 billion contracts traded, with over 9 billion contracts traded, with retail activity accounting for a large portion of this surge.

“Institutions want to execute trades with as minimal market impact as possible,” said Shane Swanson, senior analyst at Coalition Greenwich Market Structure & Technology and author of the report. “When there is a tremendous amount of contra-side flow in small and single lots, that makes executing larger size (e.g., institutional) orders more challenging.”

The report predicted that technology would subsequently become more essential to unlocking liquidity in the shifting options marketplace, citing that integrating technology was one of the top liquidity challenges cited by survey respondents.

“The challenge for institutions is to determine the best ways to interact with the market, whether that is through improved technology, enhanced counterparty interactions or even through simple advocacy,” added Swanson.

Outside of the options space, a recent outreach by Redlap Consulting with 30 global heads of trading found that 48% of buy-side firms were keen to engage with the growing retail portion of the market.

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