Market structure  · 

How to bring APAC’s equity options markets to life

Part of series:

In this series of articles, we’re exploring single-stock options markets in key regions of APAC. After describing the state of play for equity options in each of these markets, we offer our recommendations for how to grow them.

Observers of capital markets have long been puzzled by a curious feature particular to the Asia Pacific region. While exchange-listed equity options, also known as single-stock options (SSOs), are a major hit with investors in regions like US and Europe, notably little of this enthusiasm exists in some of APAC’s most established capital markets.

It has nothing to do with the vibrancy of their respective stock markets. Korea, mainland China, Japan, and Taiwan all have active, widely followed equity markets, with billions of dollars’ worth of shares changing hands every day. And there’s little to suggest that local investors lack appetite for derivatives products. Liquid index options markets generally exist in each of these places, SSOs are traded in various OTC markets, and equity warrants and products such as CFDs are also popular alternatives in some parts of the region.

We’ve identified a handful of significant but surmountable obstacles to wider adoption of listed SSOs in APAC. While common themes emerge – such as market structure features in need of updating – there’s no silver bullet. In Korea for instance, the market would benefit from more robust Corporate Action rules. In Japan, tax reforms for local investors would help stimulate adoption of SSOs.

Single-stock options play a vital role in healthy capital markets. They allow investors not only to hedge exposure to underlying stocks, but to generate income from strategies such as call overwriting.

Other market participants stand to benefit too. Exchanges can gain from the introduction of new products that also complement their existing suites. And an active single-stock options market builds overall resilience by adding liquidity in derivatives and related cash equities.

Global SSOs - significant growth in many markets

In light of the outsized benefits that boosting these markets would bring, we are devoting a series of articles to exploring the situation in Korea, mainland China, Japan and Taiwan. After describing the state of play for equity options in each of these markets, we’ll lay out our recommendations for building them up.

With our experience developing new options products globally, we bring a real-world perspective to our analysis – and we challenge market participants to help us grow these markets. Our next article will focus on the diverse uses and benefits of SSOs. To make sure you receive these updates, click the button below to sign up to our Insights newsletter.

SSOs ADTV calculated as stock price x contract size (multiplier) x no. of contracts.
Stock price = average stock price over the year
FX rate = end of year rate (to convert from local currency into USD)

To discuss this paper – or any other market structure topic – reach out to the Optiver APAC Corporate Strategy team at [email protected]

Market structure

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