In April 2009, the Tel Aviv Stock Exchange (TASE) first launched options trading on individual stocks. The TASE saw the success of the Tel Aviv 25 Index options, and wanted to expand this activity. Options were launched for four stocks: Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), Israel Chemicals Ltd. (TASE: ICL), Bank Hapoalim (TASE: POLI), and Bank Leumi (TASE: LUMI).
TASE CEO Esther Levanon said at the time, "Options trading on shares will help make the market more sophisticated, and will provide investors with more tools for hedging their investments."
In the time that has passed, options trading did not take off. Daily trading volume is low, averaging 500 options, and even this quantity is mostly through prearranged off-floor deals. To grasp the extent of the disappointment, the average daily trading volume in Tel Aviv 25 Index options was 210,000 options in 2009.
Levanon refused to give up. Less than a year after the options launch, the TASE is revising the options model, specifically the model of market makers, in the hope that this will revive the options market.
"Globes": Where did the original options launch go wrong?
Levanon: "We were misled by the liquidity of Tel Aviv 25 Index options. We looked at it, and thought that the markets could work by themselves."
The TASE management has decided to channel most of the resources to revive the options market toward market makers, on the assumption that the liquidity that they will provide will snowball and bring more players into the market, boosting trading volumes.
A year ago, the TASE appointed two market makers for the options market, but in practice there is now only one Tradomatix. A few days ago, the TASE published a tender to get three more market makers. Tradomatix was joined by Brack Capital Ltd., Amnon Riftin's Goldfish Funds and Investments Ltd., and PAI Finances Ltd. (TASE: PAIF).
TASE SVP trading and clearing department Rina Shafir said, "We realized that we had to motivate market markets to operate and to give better quotes in the market."
The motivation for the market makers will be mainly in the form of payment. Until now, market makers made about NIS 10,000 per month, which will rise to up NIS 45,000. Payment will no longer be fixed, but dependent on the number of transactions made. The TASE will rank the market makers each month on the basis of the number of transactions made. The higher the ranking, the greater the payment, ranging from NIS 25,000 to NIS 45,000.
What's your goal?
Levanon: "A trading volume of 1,000 options per share per day by August 2011."
What will happen if you fail to reach this target?
""We won't keep this market alive with artificial respiration. If this model also doesn’t work, we've given ourselves an exit date of August 2011, when we'll abolish the market makers model if it doesn’t meet the targets. We don’t intend to continue paying market makers if they don’t make a market, and the market makers didn’t go into the business to get pension from the TASE."
Published by Globes [online], Israel business news - www.globes-online.com - on February 18, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010