Why do only a handful of Canadian companies have options trading on their stocks?

Question

Of all the Canadian companies whose shares trade on an exchange, I noticed that only a handful of them offer options (calls, puts). What is the reason for this? Does not offering options on its shares draw more attention to the stock itself?

A company should like that and hence should offer options trading. So why do a lot of Canadian companies not offer options trading?

I was looking at the TSX (Toronto Stock Exchange). One company (RY, Royal Bank of Canada) has options on NYSE, but not on the TSX. So maybe it has something to do with the TSX exchange itself?

Answer 1

First, your question contains a couple of false premises:

1. Options in the U.S. do not trade on the NYSE, which is a stock exchange. You must have been looking at a listing from an options exchange.

   There are a handful of options exchanges in the U.S., and while two of these have "NYSE" in the name, referring to "NYSE" by itself still refers to the stock exchange.

2. Companies typically don't decide themselves whether options will trade for their stock. The exchange and other market participants (market makers) decide whether to create a market for them.

3. The Toronto Stock Exchange (TSX) is also a stock exchange. It doesn't list any options. If you want to see Canadian-listed options on equities, you're looking in the wrong place.

Next, yes, RY does have listed options in Canada. Here are some. Did you know about the Montreal Exchange (MX)? The MX is part of the TMX Group, which owns both the Toronto Stock Exchange (TSX) and the Montreal Exchange.

You'll find lots of Canadian equity and index options trading at the MX. If you have an options trading account with a decent Canadian broker, you should have access to trade options at the MX.

Finally, even considering the existence of the MX, you'll still find that a lot of Canadian companies don't have any options listed. Simply: smaller and/or less liquid stocks don't have enough demand for options, so the options exchange & market makers don't offer any. It isn't cost-effective for them to create a market where there will be very few participants.

Answer 2

Corporations are removed from the options markets. They can neither permit nor forbid others from trading them, local laws notwithstanding.

No national options market is as prolific as the US's. In fact, most countries don't even have options trading. Some won't even allow options but rather option-like derivatives.

Finance in Canada is much more tightly regulated than the US. This primer on Canadian option eligibility shows how much.

While US eligibility is also stringent, the quotas are far less restrictive, so a highly liquid small company can also be included where it would be excluded in Canada for failing the top 25% rule.