Higher cost, higher risk

The impact of the closed market structure on the European warrants market: price analysis and recommendations

19 November 2020

In June 2020, FIA EPTA conducted research on the impact of the single liquidity provider structure on the European warrants market and compared it with the listed options market. We examined the pricing of comparable warrants and options products with matching risk/reward profiles and the impact of differing market conditions on investors’ ability to trade in both markets. The conclusions of this research are clear: investors trading on Europe’s warrants markets are losing millions of euros a year because of its ‘closedshop’ structure which inflates prices compared to comparable products on more open and competitive markets.

FIA EPTA concludes that warrants markets operate as a closed shop with many investment firms prevented from trading and bringing more liquidity, price transparency and competition to the markets. This means retail investors, who trade extensively on the warrants markets, have to pay above the odds and face increased risk due to the lack of transparency and central clearing involved. Our research findings are significant enough for us to warn retail investors to avoid warrants markets until exchanges enable greater competition and improve liquidity and more competitive pricing, especially during periods of high volatility such as recently experienced during the COVID-19 pandemic.

  • Europe
  • Position Papers