Group Co.
Advocating for a Stronger U.S. Options Market
Traders Magazine Online News, December 22, 2017
As we move closer to 2018, one thing is abundantly clear: the exchange-listed options industry will continue to be impacted by various regulations and risks in the year ahead. I recently participated on a panel at SIFMA's annual Listed Options Symposium and had an opportunity to discuss some of the key issues that will be critical for the industry and regulators to address over the next twelve months.
Navigating the options regulatory agenda - the ORF and market makers
OCC hopes that the SEC, under the leadership of Chair Jay Clayton, will be able to streamline its rulemaking review process so that a number of straightforward issues impacting options, SIFMUs like OCC, and exchanges can move forward at a faster pace in order to better serve market participants.
For one, the process around assessing the Options Regulatory Fee (ORF) remains complex and something that is still determined by individual exchanges as opposed to being standardized across the industry. While exchanges have legitimate regulatory costs that we all benefit from, there is an acute need to rationalize those costs. I believe that in 2018, we must work toward a more transparent, consistent, and simpler means of ORF assessments. OCC, as the ORF collection intermediary among exchanges, can help facilitate progress toward a resolution.
Additionally, options industry market makers are being put in a tough spot today by regulators exploring potential changes to market structure, such as introducing speed bumps. While some view these as protective measures that give some market makers a price advantage over high frequency traders, the measures are also unintentionally driving some market makers out of the transaction life cycle entirely and ultimately cramping liquidity for market participants executing options orders. I see the exclusive focus on price in speed bumps as a fundamental flaw to any market structure adjustments, especially considering the rise of index and passive investing. Price may be important to market participants, but so are execution certainty and size visibility. While the SEC chairman has been quite sympathetic to this challenge, this mission remains: whatever changes regulators look to roll out in 2018, it will be important for them to consider the real-world impact those changes could have on the volume of options market makers, who are the lifeblood of this industry.
Bitcoin's debut on exchange platforms
2018 is presenting itself as the year of institutionalized trading of cryptocurrency derivatives. The industry has the infrastructure in place and successfully cleared the record new product contracts the industry experienced with bitcoin futures debuting on Cboe December 10. OCC stands ready to process bitcoin futures for Nasdaq's launch as well. However, it will be critical for the industry to remain alert to the volatility that comes with bitcoin and related currencies. OCC has a great deal of confidence in our STANS margining system, which has a two-day liquidation horizon, to handle products with this kind of volatility - although the volatility levels of bitcoin-like currencies are less relevant for a central counterparty that clears related futures trades due to our not less than daily mark-to-market settlements among clearing members.
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