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Top 6 Most Popular International Option Exchanges

Updated on April 4, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

International Option Exchanges

International option exchanges offer the facility to trade using option contracts, which protects the trader from the risk of loss while dealing with the underlying asset without actually buying it. These exchanges have long been in existence in the financial market, and the contracts are used for both hedging and speculation.

International Option Exchanges

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Source: Top 6 Most Popular International Option Exchanges (wallstreetmojo.com)

Options exchanges are primarily responsible for providing a location and framework for trading standardized options contracts. It is the physical or virtual marketplace for the trading of options. Such options are often traded on exchange along with futures and other derivatives. Such option exchanges similarly manage their trading as a stock exchange handles its bondsBondsBonds refer to the debt instruments issued by governments or corporations to acquire investors’ funds for a certain period.read more and stocks.

International Option Exchanges Explained

International option exchanges are the places where option contracts are bought and sold primarily for the purpose of hedging and speculation. These are contracts that can reduce or control the risk of losses of investors who wish to trade with risky financial instruments.

These risky underlying financial instruments may be stocks, currencies, commodities, indices, etc. But the traders or investors do not need to own them in order to trade using option contracts. The exchanges offer the investors a wide range of contracts from which they can select as per their financial ability and risk appetite.

The option exchanges are primarily regulated by the Commodities Futures Trading Commission (CFTC) and Securities and Exchange Commission. The option contracts that are traded in the exchanges offer a standardised contract format which the traders use for trading purpose. The clearinghouse helps in settlement of trades. The clearinghouse acts as the intermediary between the parties to the contract, and therefore there is a guarantee for settlement.

Since these exchanges offer the trading of option contracts in a standardized manner, they attract a large number of traders which ensures liquidity is maintained in the market. Even the fact that clearinghouses act as intermediary to ensure settlement provides confidence to the parties. Over and above that, since the terms are standardized and the same, clearinghouses find it easy to settle them easily with less time. Overall these exchanges play an important role in the international financial market.

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Now let us look in detail at the top 6 most important option exchanges in the international market.

#1 – Chicago Board Options Exchange (CBOE)

International Option Exchanges - CBOE

source: cboe.com

Established in 1973, the CBOE is an international option exchange that concentrates on options contracts for individual equities, interest rates, and other indexes. It is the world’s largest options market and includes most options traded. It is also considered a market leader in developing new financial products and technological innovations, especially electronic trading.

Trading on this exchange is executed through their Hybrid system enabling the customers to trade – either electronically or the erstwhile Open Outcry methodOpen Outcry MethodAn open outcry is a trading approach generally employed on a pit for stock, option, & futures exchanges. It entails the usage of oral & gestural signs by traders to convey trading details, intentions, & acceptance.read more. This traditional method involves shouting and using hand signals to transfer information, especially about buy and sell orders. This is to gain potential price movement. Most of the trades are executed electronically, which constitutes a very large portion of their business through some of the large and complex institutional orders requiring the skill of the floor brokers executed with the open outcry method.

The CBOE designed its volatility indexVolatility IndexVolatility Index, abbreviated as VIX, gives an indication of the expected volatility in the stock market and is based on S&P 500 index options based on 30 days forward period.read more for creating volatility products. VIX is the ticker symbolTicker SymbolTicker Symbol is the use of letters to represent shares that are traded on the stock market. It is mainly a combination of two or three alphabets that is unique and easy for investors to identify and buy/sell that particular stock.read more for the CBOE Volatility IndexCBOE Volatility IndexVXN, or the CBOE Nasdaq Volatility Index, predicts the future volatility of the market based on data of the Nasdaq-100 index. Essentially, it takes data from the Nasdaq-100 options to gauge the expected volatility of the upcoming 30 days.read more. It shows the market’s expectation of 30-day volatility. It is composed using the implied volatilities for a wide range of S&P 500 index options Index OptionsIndex option refers to a financial derivative instrument that tracks the performance of an underlying index like DJX. The holder of this instrument bears the to exchange it for a predetermined exercise price at a future date but isn't obliged to do so.read more. Such volatility is calculated from both call and put optionsPut OptionsPut Option is a financial instrument that gives the buyer the right to sell the option anytime before the date of contract expiration at a pre-specified price called strike price. It protects the underlying asset from any downfall of the underlying asset anticipated.read more and is used as a measure of market risk.

The movements of the VIX significantly depend on market reactions. For instance, on June 13, 2016, VIX climbed more than 23%, closing at a high of 20.97, which indicated its highest level over 90 days. The spike in the VIX occurred due to the global sell-off of the US equity trades. This indicated to the global investors that there was uncertainty in the market and thus decided to take the gains or realize the losses, which caused a greater aggregate equity supply and reduced demand, and, in turn, increased market volatility.

This exchange is also very popular for allowing investors to practice their trades before being placed so their strategies can be tested without risks. Some of the key features of their virtual trading platforms are

  • Virtual Trade Stocks, Options, Spreads, Straddles, and Covered call trades (also, see Options Trading)
  • Experimentation with advanced order strategies like Triggers and One-cancels-other (OCO)
  • We are availing the quotes at any time from any of the screens using the integrated quote window.
  • Analysis of the performance by making a download of the existing positions.

#2 – Boston Options Exchange

International Option Exchanges - BOX

source: boxoptions.com

Also known as BOX Options Exchange, it is an automated exchange owned and operated by TMX Group, a Public financial services company operating out of Canada. As an equity options market, it provides services of matching electronic orders to traders and stockbrokers.

This exchange offers options derivatives on around 1500 different securities. It generates completely tradable orders and offers multiple competing market makersMarket MakersMarket makers are the financial institution and investment banks which ensures enough amount of liquidity in the market by maintaining enough trading volume in the market so that trading can be done without any problem.read more. It also provides SOLA, a popular trading platform that matches or improves the prices of options contracts and gives responses to orders in less than 20 milliseconds.

This exchange was the first to offer price movement to traders through PIP (Price Improvement Period). The investor is required to have a broker who is willing and able to offer a facilitation trade – a trade in which the broker guarantees the first penny of the movement in the price. It is to be noted that only investors whose brokers offer this service can have access to the PIP.

A key feature of the BOX market is the PIP auction, a patented automated trading mechanism permitting brokers to seek and improve executable client orders. The participant executes agency orders as Order Flow Providers (OFPs) and desires to improve the client’s price by taking the opposite side as the Principal signal. This intent to the market is placed with the help of a special order message submitted to the BOX trading exchange. Market makers in the class and other trading participants can then compete for their orders by offering a better price. At the end of a very short period, the client side of the trade is matched with the best available prices.

#3 – Montreal Stock Exchange

International Option Exchanges - Montreal

source: m-x.ca

The equity options trading on this exchange covers most of the larger Canada traded firms but is not as broad-based as the US options markets. The interest rate derivatives cover the short-term acceptances of the bankers, which include the overnight rate till the 3-month rate and two and 10-year Canadian Government Bonds.

It is a derivatives exchange located in Montreal (Canada), which trades in Futures contracts and options on equities, indices, currencies, ETFs, Interest rates, and Energy stocks. It is also known as MX (Bourse de Montréal, formerly Montreal Stock Exchange (MSE)).

The three most attractive individual products of the exchange are:

  • S&P Canada 60 Index Futures (SFX)
  • Three months of Canadian Bankers’ Acceptance Futures (BAX)
  • Ten year Government of Canada Bond Futures (CGB)

In 2007, Montreal added 30-year Government bonds. It also introduced a new futures product based on the performance of FTSE Emerging markets in 2014. The exchange also introduced a licensing agreement and the Canadian Derivatives Clearing Corporation (CDCC) for offering the trading and clearing of Canadian Dollar swap futures and options.

The MX Clearing House and the CDCC provide central counterparty clearing services to its participants. It holds the top investment rating and a very established reputation. The CDCC has also completed regulatory rule changes allowing the clearing houseThe Clearing HouseA clearinghouse is a mediator between two firms (which may or may not know each other) that are engaged in a financial transaction (wherein one party is a buyer & another party is the seller in the said transaction), taking the exact opposite positions for each firm and ensures that there is no risk of default in the transaction.read more to offer risk management services in partnership with the OTC marketOTC MarketOTC markets are the markets where trading of financial securities such as commodities, currencies, stocks, and other non-financial trading instruments takes place over the counter (instead of a recognized stock exchange), directly between the two parties involved, with or without the help of private securities dealers.read more.

The Market Data services of the MX manage the sale and distribution of market data. It also certifies the vendors on board and establishes internal and external distribution and subscription fee policies for real-time and delayed market information. The market data is available in the following forms:

  • Real-Time/Immediate basis
  • Delayed basis of a minimum of 15 minutes
  • End of Day Summary basis

#4 – Eurex Exchange

International Option Exchanges - Eurex

source: eurexchange.com

It is an international exchange which is prominent in the trading of European based derivatives and its largest European OptionsEuropean OptionsA European option can be defined as a type of options contract (call or put option) that restricts its execution until the expiration date. In layman's terms, once an investor has purchased a European option, even if the underlying security's price moves in a favourable direction, the investor cannot take advantage by exercising the option early.read more and Futures MarketsFutures MarketsA futures market is a financial marketplace where participants trade futures contracts for commodities, stock indices, currency pairs, and interest rates at a pre-determined rate and agreed-upon future date. It, thus, protects investors and traders from losing money on a transaction even if the price of the commodity or financial instrument rises or falls later.read more. It is located in Eschborn, which is located near Frankfurt (Germany). This exchange deals in products from Swiss and German debt instrumentsDebt InstrumentsDebt instruments provide finance for the company's growth, investments, and future planning and agree to repay the same within the stipulated time. Long-term instruments include debentures, bonds, GDRs from foreign investors. Short-term instruments include working capital loans, short-term loans.read more, European stocks, and other stock indexes. All the transactions executed on this exchange are cleared through Eurex Clearing, which operates as a Central Counterparty (CCP) for multiple asset classAsset ClassAssets are classified into various classes based on their type, purpose, or the basis of return or markets. Fixed assets, equity (equity investments, equity-linked savings schemes), real estate, commodities (gold, silver, bronze), cash and cash equivalents, derivatives (equity, bonds, debt), and alternative investments such as hedge funds and bitcoins are examples.read more clearing of the above-mentioned products as well as the OTC products.

This exchange is ranked as the world’s third-largest derivatives exchange by volume of contracts and has nine worldwide branch offices.

The open outcry trading style was a preferred method during the 1990s, and this exchange was one of the first to offer a fully electronic trading platform compared to other traditional platforms. It introduced the T7 trading architecture, a reliable and robust trading system establishing a connection between buyers and sellers across 35 countries. This also led to the speedier execution of trade without the personal interaction of the parties with the capacity to trade more than 7 million contracts per day.

Eurex has a low-cost, open electronic access system providing an integrated and automated joint Clearing House. Their listed futures cover many international benchmark products, such as the most liquid fixed income marketsFixed Income MarketsFixed Income Market is where fixed income securities like government bonds, corporate bonds and treasury bills are traded. In his market, the investors receive a regular income, whether on a monthly, quarterly, half-yearly or yearly basis, and repayment of principal amount on maturity.read more around the globe. Some of the products offered by this exchange are:

Eurex Bonds is an ECN (Electronic Communications Network) for wholesale trading, especially in fixed incomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.read more securities and Treasury discount papers. The trading of these Eurex bonds provides a direct link between the futures market and cash market, enabling electronic basis tradingBasis TradingBasis trading is a monetary trading strategy that involves purchasing a specific financial instrument, such as a stock or a commodity, and then selling its related derivative.read more with the help of a central order book.

Eurex Repo is a separate segment in the electronic trading solution for Repos. This segment is a leading electronic repo market provider and operates the Swiss Franc and Euro Repo Markets. It offers the entire value chain from Trading to Clearing & Settlement.

Participation in the Eurex Repo Market and Eurex Bonds is generally open to all banks and financial service providers. These participants are subject to their country of domicile and the financial market supervisory authority for trading purposes. Eurex repo is an interbank market for private investors, so trading facilities are not available.

#5 – NYSE Arca

International Option Exchanges - NYSE Arca

source: NYSE.com

This is a popular international stock exchange for trading stocks and options owned by the International Exchange, with its headquarters in Chicago. It was initially known as the Archipelago Exchange. The 2006 Merger of Archipelago Holdings and the NYSE formed a new Parent Company or holding companyParent Company Or Holding CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies.read more known as the NYSE Group. This was a publicly-traded, profit-oriented organization combining traditional open outcry methods with electronic trading to form a hybrid system. Thus, NYSE Arca comprises NYSE Arca Equities for trading exchange-listed equity securities and NYSE Arca options for trading equity options.

The NYSA Arca options offer a trading platform that blends a traditional open outcry trading floor Trading Floor Trading Floor is a place where traders buy and sell shares, fixed income securities, commodities, foreign exchange, bonds, options, etc. It is the market segment in which dealers trade financial instruments in various exchanges, for example, Bombay Stock Exchange (BSE) and the New York Stock Exchange (NYSE).read more with electronic trading technology, offering to trade in options contracts on Domestic stocks, American Depository Receipts (ADRs), broad-based industry and sector indices, and also exchange-traded products (ETPs).

NYSE Arca Options offers a time-price priority trading model and an anonymous, flat, and open market structure. The exchange operates a maker/taker pricing model, charging a fee for liquidity-removing trades and providing a rebate for liquidity-adding transactions. Trades are guaranteed, centrally cleared, and margined by the Options Clearing Corporation (OCC). Their liquidity fee/rebate structure is similar to other electronic communication networks, whereby charges for removing liquidity from their books are $3 per 1000 shares, and the addition of liquidity is $2 for every 1000 shares.

#6 – International Securities Exchange (ISE)

International Option Exchanges - ISE

source: ise.com

This is a wholly-owned subsidiaryA Wholly-owned SubsidiaryWhen a company’s almost all of the outstanding shares are owned by another company (parent) then it can be said that it is a wholly-owned subsidiary of that company and it is controlled by the parent company. For example, Walt Disney Entertainment owns 100% of Marvel Entertainment which produces movies.read more of American multinational financial services corporation NASDAQ, Inc. It was acquired in 2016 for $1.1billion, becoming a publicly-traded companyBecoming A Publicly-traded CompanyPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.read more. It is also a member of the Options Clearing Corporation (OCC) and the Options Industry Council (OIC). It was launched as the initial fully electronic options exchange in the US. It developed a unique market structure for advanced screen-based trading. It also offers equity and index options, proprietary index products, and FX options based on foreign currency pairs. ISE also offers market data tools designed for sophisticated investors seeking information on investor sentiment, volatility, and other data for options. The ISE operates 3 US options exchanges, namely:

  • ISE
  • ISE Gemini
  • ISE Mercury

Thus, the above are the details of best 6 international exchanges dealing with option trading. They provide huge benefit to traders through a wide variety of choices regarding strike prices and expiration dates that meet the investor trading needs.

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