FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.
As Yogi Berra said, it’s tough to make predictions, especially about the future.
Case in point: a 2006 Traders Magazine article entitled The Coming Shakeout in the Options Market.
From the article: “Every year like clockwork, the heads of the U.S. options exchanges predict a bout of industry consolidation. There has been public and not-so-public flirting in recent years, but no pair of options exchanges has actually made it to the altar. Indeed, seven years after the exchanges began competing directly with one another in 1999, the number of exchanges has risen from four to six. That trend may be at an end. Broader changes now taking place could shake up the status quo-and potentially make the longstanding prediction for industry consolidation come true.”
Almost two decades later, it’s fair to say that shakeout never happened. In fact, it’s been the opposite, as expansion has ruled the day, and today’s landscape of six exchange groups running 18 (soon to be 19) options exchanges makes the six number from 2006 seem positively antiquated and quaint.
To be sure, there has been some options consolidation at the enterprise level since 2006 – Nasdaq bought International Securities Exchange (ISE) in 2016, and Cboe Global Markets (then CBOE Holdings) bought Bats Global Markets.
But any 20-year-old forecast for a lower, or even an equal, number of exchanges went off the rails for several reasons, including:
- Acquisitive operators kept their new exchanges open as is rather than merging exchanges. Nasdaq’s ISE exchange and Cboe’s Bats exchange are not only surviving but thriving, with market share of about 6% and about 4% respectively in 2025.
- Rapid growth. The industry saw a lull in the early- to mid- 2010s, but there was strong expansion in the late 2000s and an even bigger boom in the 2020s. Average daily volume in the options market was 48.7 million contracts in 2024, up from about 8 million in 2006. So for an exchange, 2% or 3% share of 8 million ADV may not be a viable business, but 2% or 3% on nearly 50 million ADV has everybody eating well.
- Greater demand – or at least tolerance – on the part of market participants for new exchanges. Options brokers often complain about the connectivity costs and liquidity fragmentation associated with having 18 exchanges, but to date all new exchanges have established themselves in the market ecosystem.
Looking back on the 2006 Traders article is timely ahead of the upcoming Options Industry Conference, where there will be discussions about the industry’s growth path, current landscape, and future outlook.
This time around, it’s unlikely that anyone predicts a shakeout.
