Regulatory reform and growth in the options industry are two prevailing themes today at the annual Options Industry Conference in Phoenix. At a Chicago Board Options Exchange (CBOE) media breakfast, talk of the exchange's upcoming IPO efforts was kept firmly off the table, while regulatory issues were definitely on.
CBOE CEO Bill Brodsky and Executive Vice Chairman Ed Tilly discussed CBOE's participation in CFTC-SEC harmonization efforts, specifically, an April 15 joint letter by CBOE and the Options Clearing Corporation about how the current dual regulatory structure is holding up new product approvals such as silver and palladium ETFs (CBOE's gold ETF took three years to secure approval due to regulatory arbitrage).
Brodsky again brought up harmonization issues in the exchange leaders panel, saying there was an "unlevel playing field" in options where there was over-regulation, vs. the over-the-counter space, where there is none. He expects a regulatory reform bill to become law by June. ISE CEO Gary Katz said he was concerned with the mandate to move all products on a centrally-cleared facility, because some products actually could add more risk to the system. "You could damage a mechanism that already works," he said.
Another hot topic on the exchange leader panel was where new volume and growth in the options industry would come from. Katz said volume had been stifled in part due to the financial crisis. "As people realize the market will turn around, volume will return," he said.
And leaders agreed that volatility products like the VIX would contribute to new volume and growth. Brodsky called volatility "the new asset class." Ed Boyle, executive vice president of NYSE Euronext, said "growth will come from volatility products, new products in general, and exchange-listed products."