Everything You Wanted to Know About Option Product Innovation

Nasdaq’s Head of US Options Sean Feeney and Head of Index Content Kevin Davitt join IBKRs Andrew Wilkinson and Jeff Praissman to discuss how they decide on new trading product innovation and the process to get them listed on the exchange.

Sponsor Information:

Sean Feeney: Head of US Options

Kevin Davitt: Head of Index Content

Note: Any performance figures mentioned in this podcast are as of the date of recording (February 27, 2023).

Summary – IBKR Podcasts Ep. 64

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi everyone, welcome to IBKR Podcasts. I’m your host, Jeff Praissman, Interactive Brokers senior trading education specialist, along with Andrew Wilkinson, Interactive Brokers director of Trading Education. It’s our pleasure to welcome to the IBKR podcast studio, Sean Feeney Nasdaq head of US options and Kevin Davitt, head of Nasdaq index option content. Hey, Sean, Kevin, thanks for joining us today. Could you guys give our listeners a brief background on yourselves please?

Sean Feeney

Jeff, thanks for having us. My name is Sean Feeney, I’m the head of US options here at Nasdaq I have been in the industry now since 1999, been at Nasdaq for about 6 1/2 years now, joined at the end of 2016, started on the sales side here. Moved over to the business team I n 2019 and it is an honor and a privilege to lead the US options business forward as of January 1st of this year. Very, very happy to be here. Thank you for having us. I’ll throw it over to Kevin for a quick intro.

Kevin Davitt

Thanks for that pitch, Sean. I too joined this industry at the same time Sean did, so late 90s and I kind of quickly fell in love. I traded on the trading floors back then and on the screens for years. Risk management, and I think derivatives in particular make it so no two days in our line of work are the same and I think that fits my personality. For the past eight or nine years, I’ve worked for exchanges first at Cboe and more recently, Nasdaq. And in my current role I create content which is written/spoken like this situation here, live presentations and all of that is in an effort to support Nasdaq’s broader corporate goals and I have an index option focus. I would say that Nasdaq is awesome because I can kind of flip and focus on business development as well and the exposure to multiple sides of the prism that is derivatives is something that I love and thank you very much for having us today.

Sean Feeney

A funny story, Kevin and I, when we first started in the industry, we were working with firms that were partners. So I’ve seen K. Davitt across our communicator engines and everything since the early 2000s and this is back when we were both on the floor and Kevin was on the Cboe floor and I was on the floor of the American Stock Exchange as an option specialist, which is more of a lead market maker, primary market maker these days as far as the nomenclature is concerned. Back then started the career and then worked down there until 08 and then yeah, here we are today right back where we started working together.

Andrew Wilkinson

Right. Well, it’s great to have you guys in the studio here. We recently did a webinar with these guys, Jeff, and we thought it would be great to give our listeners some insight into exchange product innovation, how and why and what goes into the process. So let’s kick off guys, what have been some of the bigger innovations say over the past 10 years.

Sean Feeney

Gosh, in the last 10 years? Let’s go back ten years, in fact. Let’s go to the initiation of weekly options series. So that happened probably around 10 years ago and not necessarily a technological innovation, but more of a product innovation where the industry has given participants the ability to trade some of the more liquid symbols on a bit shorter duration as opposed to prior to 2012, 2013 when weeklies were introduced, the expiry cycles for all securities was really just the third Friday of every month. So as the growth in the industry has really taken off over five or six years, we’ve seen an increasing amount of interest in shorter duration options trading and the weeklies kind of paved the way for that. And you know, we’ll get to this a little bit later. As far as the current meta and where options are really concentrated in the first few days from expiration today, but it really started way back then. Kevin, you want to throw out some more on just the product that’s available?

Kevin Davitt

Yeah, I would say in terms of success that the launch of weeklies is kind of the genesis because these days you have first the Wednesday and then Monday, Wednesday, Friday and daily is in many index products. And just one thing and admittedly, I’m talking my book here but coming over to Nasdaq a handful of years ago, so less than 10 years, I think it was 7? 6 or 7. My boss, John Black and Greg Ferrari, who Sean works closely with at Nasdaq, made a decision to take NDX options, the complex, in-house. And I want to be clear that my goal here is not to take a swipe at an exchange that I worked for, and I continue to admire but I think John and Greg saw that there was no incentive for a competing exchange to elevate the standing of Nasdaq 100 Index Options, and I’ll often think in sort of physical retail terms. There is a reason that certain products have specific shelf space and NDX options were essentially on the lowest shelf with no visibility, and so a couple of years ago John and Greg saw an opportunity there and I would argue that it’s working. NDX options are listed and traded on three of Nasdaq’s 6 exchanges, and Sean can talk a lot more about this, but we as an exchange can source a really deep, diverse liquidity pool and the consistent growth in index volumes I think is evidence that this approach is working.

And another thing in terms of not necessarily a new product, but product innovation, Nasdaq and the industry has since rolled out smaller notional products. This has happened in the equity space and it’s happened in the future space. So specific to the NDX we have a 1/5^th tracker focusing on the Nasdaq 100 price performance, the index ticker there is NQX. And then there’s XND which is 1/100^th and I think that speaks again to a broader industry shift toward more accessible notional products, which I love. I think for many years index options were considered almost institutional only products. You think about the full-sized NDX options you’re gaining about 1.2 million in notional exposure to Nasdaq 100 price levels with the index around 12,000 and that’s a big product, but as you at Interactive Brokers know well the options using community has grown by leaps and bounds, particularly in the past couple of years. So in terms of pure numbers, just much broader, but I would say that they also have an increased sophistication and as such more and more people understand the potential benefits of cash settled products, European styling, that granular expiry that we’ve mentioned as well as the potential tax benefits that typically come with index options. You need to consult a professional as far as that goes. So, I think the creation of notionally approachable index products has been and will continue to be a key to the broader acceptance and utility of options generally.

Sean Feeney

And let’s take that back all the way back in time to when we started, right. So, the first pit that I was trading in was the Q’s pit on the floor of the annex and we had three products that we traded in that pit. We had QQQ, NDX and the MDX at that time which was the Mini Cboe NDX product right? So, those products when you put them together, they form the complex and this was before SPY options even existed and so like there wasn’t a complex for the S&P. The Nasdaq 100 was like the only game in town as far as the complex was concerned and there were traders that were on the on the Board of Trade who were trading the futures. There were traders that were in the crowd relaying what was happening in the crowd to those traders. And just kind of to bring it back to the question at hand, which were some of the innovations over the past, 10 years, 15 years, 20 years and we both started when it was fractions. We both started when everything traded on the floor. We both started when you had to manually input tickets into the exchange system and then they would filter through electronically and then eventually get executed to now where we’re at breakneck speed.

So, the innovations that have needed to really be present in the marketplace in order to get us to where we are, are really the full electronification of the markets from fractions to decimals. And I was a specialist in the first product that was traded in decimals on the floor of the American Stock Exchange, which was Xerox and that was 2002. The introduction of the International Securities Exchange, the ISE which was the first fully electronic market that now Nasdaq owns and operates the ISE and the three exchanges that go through with that. The introduction of complex orders into the space.  And then moving more closely to today, the increased amount of tenors that are available for trading, expiry cycles that are available for trading as Kevin has alluded to. Now, we have daily experiences in NDX and the Qs, SPY, SPX. and you know, ideally I believe the retail community or the community who trades options either professionally or in kind of this this retail investment objective proliferation that we’ve really kind of seen ourselves in over the last five years since they want more product. They want to be able to express their opinions and the shorter duration products certainly do have quite a lot to do with that. So much so that there’s a lot of conversation within the industry is like, do we list dailies on products aside from the largest broad based index product? And if you ask me while I’m wearing my Nasdaq hat, I say yes.  If you ask me when I don’t wear my Nasdaq hat I also say yes, because I think that the volume certainly would be accretive to the industry and the availability of product for investors to be able to relay their investment objectives. Yeah, the industry deserves to have product that’s really out there, but they don’t exist in single stocks today and there are several reasons why. And we can get into that if we want in the next question.

Jeff Praissman

Well, that actually brings up a good point, Sean and Kevin and kind of to take a step back just what Kevin mentioned a little bit earlier with the micro and the mini NDX. It seems like accessibility is a big theme behind at least one of the reasons an exchange will come up with either an innovation or a product. What are some of the other items that the exchanges look at when sort of spit balling and thinking about, OK, we’re going to start listing weeklies? And then as we just talked about dailies, at least on the indices and possibly at some point in single stocks, you know where else are you guys getting your ideas?

Sean Feeney

Oh gosh, from functionality perspective, how the exchange space has changed versus how the industry has changed kind of moved in tandem but kind of a little bit separated. Where the retail customer used to send orders directly into the exchange and in a lot of instances, they kind of source liquidity and they look for price improvement from the available screen liquidity utilizing either the wholesaler space or by being a little bit more intelligent in their in their routing and sending more limit orders than market orders et cetera and how the exchange really kind of grappled with that is we built out price improvement methodologies for orders to be exposed for additional price improvement after they’ve been entered into the exchange, right? So, the exchange will get an order. That order will be paired. There will be a guaranteed execution. The exchange will broadcast the message. Then the participants will ingest that message and then decide that they would participate on any given trade at a certain price level, and then some participants will look to improve that price. What ends up happening in the end is that the customer receives a better fill, and that better fill will lead to more order flow in the future either coming from that customer because they have better experience, or it will. Yeah, but ideally the goal here is to provide the customer with the best price, to provide the customer with the best experience, to take feedback as to how to make the option space the best experience that you can possibly have when entering an order either blindly or with a with a good deal of education and information behind it.

Kevin Davitt

So, as you guys know full well, Andrew and Jeff, Sean can go into the nuance on this stuff really, really well. I tend to take a little bit more broader perspective and that comes from my background most certainly. But if you’re talking about exchanges coming up with product, I think the approach can vary greatly and this is just my opinion, but I think the key is arguably communication with all clients. So, Sean can back this up but institutional, because liquidity is a must. I would contend that technology and liquid markets are the lifeblood of a successful exchange, but you also need demand from end users. You can’t be blind to what the community wants, otherwise you end up with like new Coca-Cola right? There, there was no demand for a product, and it can be expensive to bring something to market. It’s not like you can just whip these up and put them on the shelf, so to speak.

Another thing, I think that’s often overlooked is that timing matters no matter what. Just like in trading, Sean and my days on the floor, your timing matters. You could say that you’re early to a trade that translates to wrong. If you’re early and sized incorrectly, it’s a real problem. If you’re late to a trade, you might be lucky to make a little bit of money and product listing and growth can be somewhat similar. I think you need to give a product enough runway to allow for success, but not so much that you stifle other opportunities because you as an exchange or the community are kind of pot committed to a loser. Because you can’t bluff successfully in this industry, and you need to be getting feedback all the time. Sean, I don’t know what whether you agree or disagree with that.

Sean Feeney

I couldn’t agree more and you speak to my soul when you start throwing in poker references. So, it’s a lot of fun.

Kevin Davitt

I know I do.

Sean Feeney

You really, really did.

Andrew Wilkinson

When you’ve conceived the notion, you’ve spoken to different departments and market makers and so on … how long before something can actually be rolled out? And I’m assuming here that there’s an approval process.

Sean Feeney

There is an approval process, and that approval process can vary in length between 30 days to 90 days. And as the exchange, everything that we do is very regulated, So our regulator is the Securities and Exchange Commission, we discuss any functional changes to our system as well as any new product with the SEC will typically file a rule filing in draft form with the SEC themselves. They’ll mull that around internally and they’ll kick it back to us and say hey, this is a really nice idea, but maybe you should think about it this way, this way and this way or over overarchingly, we’re looking for a product where that doesn’t introduce systemic risk. Where it doesn’t do any harm to investors and it provides a new opportunity for investors to absorb and then take action upon, right? But we will file those with the SEC publicly and then the industry and really the general public, has the opportunity to comment on any of the new products or any of the rules that we put through the Securities and Exchange Commission in a public setting and they can file comments publicly. They can file their opinion and we would receive all of that feedback in a public forum.

We do, of course, source that opinion prior to creating a rule file, and we’re not going to just jam those or try to put those on the tape. But you know, there are all sorts of different products, whether they be functional on exactly how the orders end up running from concept through execution through the broker and then finally end up to the exchange where they would be executed and the exchange gets to facilitate the transfer of risk process and then relay that information back through the broker and then finally to the end user or their new products where we would conceptualize the product and you know there was a good deal of success when options and futures were introduced for the Cboe Volatility Index, the VIX. So, we have created and have launched options on the Nasdaq 100 Volatility Index using, a slightly different methodology and that symbol is VOLQ and that now we have options that are traded in futures that are traded on the on the VOLQ Index, right. So, as far as products … it’s also very difficult for an exchange to launch a product where we do have that kind of regulatory hurdle that we have to go through in order to in order to get the product finally, onto the tape. And so, there’s always an educational challenge and hurdle where we need to make the retail investor aware of any given product as well as educate them on best use cases and then find the liquidity for that product and then figure out what the pricing structure should be and then finally, we end up launching them on exchange.

Kevin Davitt

Yeah, I’m not looking to derail this, but when you kicked off with, we’ll send something into the SEC and they’ll come back with “Yeah, that’s a great idea.” I was a little bit skeptical that we get a whole bunch of responses just like that, but I’ll leave it at that.

Sean Feeney

They do tell us that we’ve had some, some fairly good ideas, right? I mean that there are all sorts of market microstructure issues that exist in the options landscape today and we we’ve come up with some interesting solutions to them. So, our last feedback on our product was actually an auction that that didn’t have a paired concept to it. That’s our request for Prism auction, which I thought was kind of funny that Kevin used the word prism on his introduction, but that that’s a price improvement mechanism that exists on the BX Options Exchange that we own and operate today, where you don’t have to have a paired order to be subject to price improvement. Essentially you will give us your ask, we’ll distribute that information and then a participant who wishes to interact with that order will then tell us that and they would then become the de facto initiator of that auction and then that auction would be subject to further price improvement beyond. And the Commission intended to really like that in concept, so much so that in the recent SEC market structure proposals, as they look to introduce the auction concept into the equity space, they would prefer that that auction not be paired at entry or that that they look to source different. Rather than having an auction come be introduced by a wholesaler or a participant who’s already willing to internalize that order and then subjected to it to additional price payment. It’s almost like a find a friend approach, which they appreciate.

Jeff Praissman

So, I want to put both you guys on the spot a little bit here. If you guys, Kevin and Sean, each give me one idea that the exchange thought was going to be extremely successful and ended up not being so much. Not being so successful and maybe sort of a little bit of a disappointment.

Kevin Davitt

Yeah, I’ll happily kick things off here and I want to preface this by saying I haven’t been at Nasdaq long enough to highlight an in-house example, so I’m not taking swipes at a leader in the industry. But thinking of my time at CBOE, we launched Bitcoin futures and Cboe was approved and went to market a week ahead of the CME products, the Chicago Mercantile Exchange. Cboe’s product had a one multiplier on the underlying price, whereas CME controlled, I believe it’s 5 Bitcoins. And this is back in late 2017 when crypto sort of first went parabolic. You saw a big price move higher and the appetite for listed product I would say was very high. So from my perspective, Cboe was in the catbird seat there and I think they enjoyed that position. Their first to market with a more approachable product from an notional standpoint, they figured out the margining with the OCC, which was unusual too, because of the volatility associated with the product. I know you had Interactive Brokers, we’re familiar with that. They did a floating rate margining. Anyhow, trading the CME product was going to require a whole lot more capital because of that multiplier. The Cboe product would tie up less, which I viewed as a huge advantage for retail adoption. But that product settled based on the value of Bitcoin trading on a single exchange. Again, not an exchange swipe, but it was settled based on a Gemini price. It was a VWAP calculation over a time window to smooth potential jumps but Gemini simply didn’t have much volume in a very fragmented crypto market and so that became a significant issue. The CME product by contrast, aggregated values from I believe five or more exchanges at settlements and after not too terribly long and following a lot of fanfare Cboe’s Bitcoin futures went the way of the dodo bird and CME futures took top spot and and never looked back. So Sean, I don’t know if you have any other examples to this, where were excited about something and then maybe it didn’t quite flower the way we expected.

Sean Feeney

Yeah, I think I’ll go back in time and a little bit before my time at Nasdaq when Nasdaq introduced the BX Options Exchange initially, right? So, it was an interesting market model, and it was an inverted market model where it was essentially created to replicate the payment for order flow regime that exists on some of the traditional exchanges. So, it was rather than traditional make or take models and this is getting a little bit weedy, where you would receive a rebate to add liquidity. It was essentially a scenario where you would pay to add liquidity and you would receive a rebate to remove that liquidity. Yeah, that market model never really took off. So much so, to the point where in 2020 we decided to completely shift that model and it was initiated in March of 2021 and we created a make or take pricing structure for the BX Options Exchange, and we created this kind of muted fee and rebate environment and it’s been incredibly successful. So yeah, it’s really just kind of hitting on the right time, hitting on the salient points that the individual participants are caring about at that time and then really just threading the needle and putting the right product in place to the right participants at the right point in time, that really lends to a product success.

Kevin Davitt

Man, that’s an interesting one. Another, Sean, that I worked with years ago was pumped at the creation of that exchange and the model – and I don’t know that he would listen to this. Maybe I’ll tell him to — but it is so fascinating to see how some things work out. How you just have that confluence of factors that that leads to success and others don’t and my other friend Sean wasn’t trading on that exchange for all that long because you need more than one or two things to come together to really see a product too well.

Sean Feeney

It’s really hard to find the lightning in a bottle and then harness it. Really it is.

Andrew Wilkinson

So guys, can you give us any examples kind of on the flip side, where there wasn’t that much excitement about it? People felt kind of lukewarm about it, yet it ended up being a successful launch.

Sean Feeney

Yeah, I don’t know. Do we oversell on the products themselves and then when they are successful, like “alright, cool, that was great.” But I think most of the products that we’ve at least put out into the marketplace … once we’ve brought them into market they’ve behaved in in a way almost as expected. Yeah, I think we’ve seen so far lukewarm growth across some of the micros that have that have existed so far today, and there was there was so much buzz around them when they when they first started kind of coming aboard, and the jury’s still out on exactly how successful they’re going to be.

Kevin Davitt

But the future side of the micros have been an overwhelming success, and I think that ultimately could translate on the on the option side. I don’t mean to cut you off.

Sean Feeney

No, that was a real surprise.

Kevin Davitt

In my opinion, if you continue to see adoption grow on the future side, that could spill over. And I think one “maybe” example and to toot Cboe’s horn here, Sean, you mentioned a little bit earlier, it took a while for the volatility, as an asset class, which I’m not advocating for but for the VIX complex to really blossom. And you had a timing element to that too with your 2007-2008 market crisis and then more and more people understand the impact that forward volatility has on their portfolio, on tools for managing that exposure because the futures were launched in 2004 and the options in 2006. And they really didn’t experience a whole lot of success until there were ETFs that wrapped that exposure, and it became much more accessible to the individual market participant. And so, I think that is one example of something where there was lukewarm appetite, lukewarm volumes, but enough runway was given to see it really sort of germinate.

Sean Feeney

And the ETF industry at large, I think has been a very nice surprise as far as the amount of inflows into all ETFs, because when they first started and we’re going again back into the late 90s. And they were really structured products that were packaged and then immediately traded and hedged, right. So, you essentially needed to know that product existed and then you essentially were shopping larger orders as opposed to today and really the electronification of the entire space proliferated that. Those structured products became far more streamlined as time went on and the education around ETFs being an industry started to kick off. So, now with just a limited management fee of an ETF versus a mutual fund or a separately managed account … the cost structure is there, the product development has continued to develop and continued to expand that also now include these option wrapper products like we have our own option wrapper products that do cover calls on the NDX or specific strategies on individual indexes, right? So as that as that industry has continued to expand and more issuers come into the space and more product becomes available, I can only can see that industry continuing to take in additional assets under management because it was a fairly small fraction of the market way back when.

Kevin Davitt

That’s a really, really good point you brought up and I can’t help but highlight a webinar I did with Interactive Brokers last week and a partner of Nasdaq and in some of that option wrapped product that you’re referencing and democratizing the structured product world I think is an opportunity that has huge, huge upside. And so, it’s arguably no surprise that the options based ETFs are the quickest growing area of the ETF world, and they do deserve kudos for embracing that. Figuring out a way to package these products and make them accessible to a much broader audience, so well done bringing that up.

Jeff Praissman

And you know, in this conversation, we touched on a lot of items. Innovation is definitely one of the themes. We’ve talked about the ETF and indices options going from weekly to Monday, Wednesday, Friday to dailies on some of these. What do you think the future holds? Are we going to have a world where the option exchanges are open 24/7 or 24/6? What’s the next big thing? I know, Sean you mentioned possibly dailies on single stocks which don’t exist yet, but Kevin and Sean, in both your minds, where do you think the next big step is to kind of offer more accessibility or a year down the road, five years down the road?

Kevin Davitt

 and Sean is going to be able to talk about the nuance and the potential challenges associated with that. Any question about the future, the truth is that nobody knows. But when I personalize this, and I think about my decision to take a position at Nasdaq, I was doing so with a focus on the future and I kind of hinted at this early, but I do believe that from an index standpoint, the Nasdaq 100 could become kind of the bellwether reference during my working days so, let’s say the next two decades. I think that in terms of fund flows, it’s already begun, you see it in the ETF world. More and more portfolios I think are overweight technology because the economy as a whole is overweight technology. Tech drives the global economy period. I think there’s also a shift away from old energy and I’m not making a political argument here, the NDX as a function of its methodology doesn’t include energy in the same way that the S&P’s do. Beyond that, I think it’s possible that a younger generation allocates away from traditional finance in general, I could be way off base here, but financials are not represented in the Nasdaq 100 in the way that they are in the S&P’s either. So just a real simple example, Nasdaq 100 doesn’t include the likes of JP Morgan or Wells Fargo. The old guard of finance, so to speak, and they’re hugely important companies, no knock there. The NDX does, however, include the likes of Fiserv and Fiserv is a company based in Wisconsin that services financial service clients with their technology. So, they sprung out of Citigroup years and years ago and their resources, if you think about like how you make payments now, are you using checks to tap your JP Morgan or Bank of America account? Far less frequently and Fiserv, serves as an example of those new financials that are tech driven and we’re moving dollars around really quickly. So, this is my way of saying that I believe that the Nasdaq 100 will be viewed alongside the S&P’s, if not ahead of them in terms of representation of the economy in the future and I think that as a result of that, the risk management tools that reference the performance of that index will continue to grow. It’s going to be demand driven and ultimately the old saying holds true, necessity is the mother of invention. More people will need exposure to the Nasdaq 100 or ways to manage that exposure and I think our team is positioned well to benefit from that path.

Your questions, Andrew and Jeff on the nuance of dailies of new products is something I think Sean lives and breathes, so perhaps he could talk a little bit more about the future on the structure and technology side from the exchange standpoint.

Sean Feeney

Yeah, I would love to introduce daily options if we can do so in a very responsible way. There are a few different challenges to the introduction of those products, some of them on the educational side, some of them on the clearing and settlement side and a shift to potentially 24-hour trading. And with global trading hours that have been introduced at other exchanges and some products that trade in a 24/5 way, do I see the future holding an expansion of that product suite that would be available 24/5? Yes. So as far as the future there is concerned, I can speak to that. But also, for our side of things and the jury is certainly out, especially over the last few years with all of the scandals that have been run amok. But the digital asset industry is starting to evolve into a place to house assets potentially in the future and once the regulatory regimes really package what that industry should look like from a regulatory perspective moving forward, I can see institutional as well as additional end user interest in the digital asset suite.

We’ve gone through the process of almost kind of creating this industry, but I don’t think that we have a lot of success in creating industries. If we go back to say the energy industry back in the early 2000s and what had happened is that industry kind of kind of took off and proliferated and became the Enron’s of the world and then kind of saw that implosion. And what were we really experienced over 2021 and 2022 and really more so in 2022 as the digital asset world really expanded and got a bit ahead of itself, was that we saw the bad actors kind of come into the space because it largely is unregulated. So once regulation starts to be introduced into that space, I can see if finance and digital assets meld into this kind of DeFi/CeFi … traditional finance meets decentralized finance in a regulated fashion that’s safe for investors. I can see more 24/7 trading of digital instruments that could represent and or look like or. Mirror that which exists in the securities world today. So as far as the future, I’d say that it’s 24-hour trading for sure. I think kind of going into our chosen niche and the options world, I would see the evolution of additional product, whether that be ETFs or single stocks and additional tenor cycles whether they be one day or Mondays, Wednesdays or all four non-covered days to this point. I can see that happening and then additional expansion into digital.

Andrew Wilkinson

Sean, you mentioned earlier responsibility and avoidance of systemic risk. Can you think of any other limitations when it comes to rolling out and creating new products?

Sean Feeney

No demand, of course. So, I mean, if there’s no demand in a product and the problem is we get ideas that kind of come into our sphere quite often and perhaps some of them could pose a systemic risk. And there’s been a lot of talk about the increase in zero days to expiry options products that are in existence today. Have always been in existence but we’re seeing a lot more in the news about this becoming a potential systemic risk. I don’t personally believe that it’s anywhere close to a systemic risk, nor do I think that it looks like Volmaggedon 2.0, but we always have to be mindful of that. It’s really about demand for additional product. When we think about structured products, some of the products that come into this landscape, they just don’t have enough demand. So, they end up launching under great fanfare and then fizzle out fairly quickly. And we kind of saw that and again not to take shots because it’s an amazing exchange group and a very nice product but we haven’t really seen a lot of expansion in FAANG, right. And when you cater a product to a fad it’s difficult or when you cater a product that’s too specified, it becomes very difficult for that product to gain staying power. Yeah, but we think that the Nasdaq 100 is very well positioned. We like to call it the modern-day industrials of the tech companies that that make up the Nasdaq 100 and they’re not all tech companies right, like American Airlines is not a technology company. Then again, everything in technology — let’s say … What did Kevin say it was? The mother of invention? What did you say it was?

Kevin Davitt

Necessity is the mother of invention.

Sean Feeney

Right and I’d say that desire is the ant of invention, and it’s really just looking at that necessity and then potentially looking into the future and saying, OK, well, these are the products that I want and are they reasonable to put forward into the marketplace? If the answer is no, we’ll get told either by our… let’s say due diligence process when we’re putting a product out or by the regulator itself. And again, we’re looking at systemic risk not harming the end user and then ensuring that the product is not in conflict with anything that’s currently exists.

Kevin Davitt

I think you covered that base incredibly well. The one thing I would add is that I think it can be really difficult to see a product become successful without it being distinguished enough, you see look-alike products. Taking the lead from something that has been successful and changing it in a way that’s not meaningful enough hasn’t proved very successful in our industry and so you need a product to be distinguished enough or different enough to shift that focus, shift that value proposition, if you’ll pardon the kind of corporate buzzwords, for end users to find value in that. Because look-alikes that are maybe a little bit cheaper — like people are creatures of habit and you stick with what’s worked for quite some time, unless a different path looks different enough and opportunistic enough to make sense to go down. And so that’s the only thing that I believe is another sort of obstacle to new product launches.

Jeff Praissman

Well, Sean and Kevin, thank you guys so much for stopping by the IBKR Podcast studio. A reminder to our listeners that Nasdaq is a frequent contributor to the IBKR campus. To see more educational material from Nasdaq go to ibkr.com, click on education in the top right and IBKR Campus and then click on our contributors and look for Nasdaq. Thank you for listening until next time, we’re Jeff Praissman, Andrew Wilkinson with Interactive Brokers.