Evidence of the banks' role in filling gaps in the exchange-traded derivatives market

This paper examines the market capitalisation, relative trading volume and volatility of the S&P/ASX 200 Index constituent stocks. We classify stocks into three groups: stocks with listed exchange-traded options (ETOs); stocks with listed warrants but no ETOs (warrant-only); and stocks that have no listed exchange-traded derivatives. We find that ETO stocks have large market capitalisations relative to warrant-only stocks. However, ETO stocks do not have higher relative trading volumes or lower volatility compared with warrant-only stocks. When comparing warrant-only stocks with stocks that have no exchange-traded derivatives, warrant-only stocks are larger, have higher relative trading volumes and are more volatile. These results are consistent with banks taking advantage of the opportunity to profit by listing warrants on stocks that do not have ETOs