How does standardization work in derivative markets?
To be listed on the exchange market, derivative products are standardized, which contributes to the existence of the highest liquid derivative market. However, standardization could deteriorate liquidity if it does not appropriately match market conditions and investor needs. In this study, we take advantage of the Japan Exchange Group’s（JPX） reform of the standardization of Japanese Government Bond (JGB) futures options. Under low yield and volatility in the JGB market, the JPX has changed the strike price intervals of the JGB futures options from JPY 0.5 to JPY 0.25, which is the first attempt by the Exchange to change the strike prices of bond futures options as far as we know. Using this reform, we empirically demonstrate that the JPX reform improves liquidity in the options on JGB Futures market.