European investors currently account for an estimated 10% of total US-listed options trading volume, and their high levels of assets under management (AuM) offer room for expansion, TABB Group says in a new report.
There is considerable latent demand from asset managers, hedge funds and private wealth management accounts, says Andy Nybo, a TABB principal, head of derivatives and author of the report.
Hedge funds in Europe account for 58% of total European trading in US-listed options, Nybo says.
European investors are active participants in US equity markets, and the use of listed equity options is a natural extension of their strategies to manage risk and improve returns, Nybo says. Global regulatory efforts to reduce risk are refocusing investors preferences to centrally-cleared, exchange-traded products with US-listed options markets ranking high on their list of attractive opportunities.
The biggest challenge facing European investors trading US options is a lack of understanding, he adds. He calls for industry efforts to educate investors on options strategies, which he says would increase demand.
We also believe that theres considerable confusion around the constantly evolving options market structure with European participants complaining about the lack of clarity in how the market operates, Nybo says. European-based investors are active users of index and single-stock options, but they are exploring how to expand trading activity in exchange-trading funds, volatility and weekly option products. More aggressive trading strategies deployed by hedge funds will drive short-term growth in European activity but greater demand from asset managers and private wealth accounts will add to volumes over time.
The report, European Demand for US-Listed Equity Options, is available to TABB subscribers here.
(CG)