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What's the Flux?

Penny Trading and Portfolio Margining Change Options Biz

Traders Magazine, August 2007

Brad Bailey

The U.S. equities option market, which has grown at an annualized rate of 30 percent since 2000, has undergone a tremendous transformation. However, in many ways, this transformation has been just a rehearsal for what the options market faces this year. Clearly, the options market of 2007 looks very little like the options market of 1999, as the forces of electronification and institutionalization have entirely changed the players-and the profits. Now, the market is in the midst of absorbing two major regulatory changes that will significantly impact capital usage, transparency, liquidity and market structure. There's also the possibility of new types of entrants participating in the marketplace. The penny pilot program and portfolio margining both stand to impact the options market in a profound way.

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