(Bloomberg) -- IEX Group Inc. is preparing to open an options exchange, the latest firm to capitalize on the boom in derivatives trading across the US.
The equity exchange operator will enter the options market next year, pending regulatory approval, according to President Bryan Harkins. It will be an electronic-only venue that provides access to the entire options market.
“The tool sets that IEX has delivered in equities have a lot of applicability to help solve some of these challenges for market participants in options,” Harkins said in an interview.
New venues have been popping up amid surging volume. Trading in the US options market has been smashing records, thanks in part to a boom in contracts tied to the S&P 500 Index that expire within 24 hours. A record 73 million put and call contracts traded on US exchanges on Aug. 2, data compiled by Bloomberg show, though volume stalled in the next few weeks amid a summer lull.
Helping lead IEX’s effort is John Palmer, who’s head of options and in charge of the new exchange. He reports to Harkins, who oversees both IEX’s equities exchange and the new effort. The firm also hired Ivan Brown, former head of options and business development at the New York Stock Exchange, to lead business development and product design for the new exchange.
IEX joins rivals including Miami International Holdings Inc., which started a new options venue last month that’s part electronic, part physical trading floor based in Miami. Last year, the Members Exchange, or MEMX, started offering options trading on its electronic venue.
Pending approval from the Securities and Exchange Commission, IEX would be the 19th options exchange operating in the US, Harkins said. The firm is building it using the same underlying technology as its equities exchange, he said.
“We understand there’s a lot of options exchanges out there,” Harkins said. “It is a competitive market. But our solution, unlike other recent exchange entrants, is going to be truly unique. No exchange has the products that we have.”
IEX started as a stock exchange in 2016 and came into fame through Flash Boys, Michael Lewis’s 2014 book about high-frequency trading. The firm bills itself as a champion for market integrity and fairness in pricing. Co-founders Brad Katsuyama and Ronan Ryan met while working at Royal Bank of Canada on its electronic-trading team.
More recently, the business has been expanding with key senior hires including Harkins, who held leadership roles at Cboe Global Markets Inc., where he oversaw equities, derivatives and foreign-exchange trading as well as the firm’s Bids Trading subsidiary. Palmer was added later, also an executive from Cboe who led their digital business.
Trading on exchanges is a competitive business, long dominated by the NYSE and Nasdaq Inc. in equities and Cboe in options trading. IEX represented about 2.7% of average daily US equities-trading volume in September, up from the 1% to 2% it had been hovering around in previous months.
--With assistance from Elena Popina.
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