(Bloomberg) -- Optiver is expanding its derivatives empire in Japan, where it aims to boost a single-stock options market that has so far been virtually non-existent.
The speed trader, which has been dealing index contracts in the nation since 2008, in September started providing liquidity on options of 12 Japanese companies and exchange-traded funds. The Dutch firm aims to grow that number to 30 by June, according to its head of international sales in Japan.
“A liquid single-stock options market offers investors more diverse trading products and sophisticated financial tools to manage risk, hedge positions and gain exposure to Japan’s corporate landscape,” Optiver’s Nippei Yasuoka said in a recent interview. “Japan’s single-stock options market is well-positioned to break the historical challenges of poor liquidity and trading volume.”
Optiver is the first to provide market making for Japan’s single-stock options since April 2017. Concerns over capital efficiency at the nation’s companies and the deflationary environment have suppressed equity demand for decades, but that’s slowly changing, driving up shares over the past two years. Since the Dutch firm began its push, the notional value of traded contracts on the 10 major individual stocks has surged, reaching ¥6 billion last month ($40.5 million) from just ¥8.1 million in August, according to Osaka Stock Exchange data.
The Topix index climbed 0.3% on Monday, while the Nikkei 225 Stock Average gained 0.2%.
Traders in Japan have historically relied on options on the Nikkei 225 rather than on individual names, which have often been exchanged over-the-counter. While listed contracts are currently available for about 200 single stocks, their trading on exchange is tiny. The hundreds of puts and calls on the 10 major names that change hands daily compare with several millions overall in the US, Europe or India — where Optiver opened offices last year to ride the local boom in derivatives trading.
The firm, which is also adding staff in Singapore to provide liquidity 24 hours a day in foreign-exchange options, is betting that a push by the Tokyo bourse for better corporate governance will lead to more stocks trading and increased usage of derivatives. Optiver has started market making for listed equity options including those on Toyota Motor Corp., SoftBank Group Corp. and Mitsubishi UFJ Financial Group Inc., as well as an ETF tracking Nikkei 225 companies.
Japan Exchange Group Inc., which owns the Osaka bourse where options are traded, is seeking to attract more market makers, Chief Executive Officer Hiromi Yamaji said in a recent briefing. “There’s a high potential for the options markets in Japan,” he added.
The key to making Japan’s single-stock options market successful is to attract retail traders, according to Masanari Takada, a quantitative and derivatives strategist at JPMorgan Securities Japan Co. He expects mom-and-pops will eventually account for a big portion of the derivatives trading as they have no limitations on how they use the instruments, unlike institutional investors that are restricted by their mandates.
Retail traders have boosted their dealing of equities since the government expanded a tax-free investment account this year. In the first six months of the year, households poured at least ¥7.5 trillion there, almost four times more than in the first half of 2023.
“This market has been dormant for many, many years,” Optiver’s Yasuoka said. “Both institutional and retail investors were looking for liquidity to trade single-stock options in Japan.”
(Adds Monday trading in fifth paragraph)
