New Symbology Option Set to Increase Trading Options, Workshop Finds

New options in symbology is set to increase trading opportunities and is likely to increase quote traffic by between 50 and 100 per cent, with transactions likely follow suit consistent with current trade-to-quote profiles, suggested a panel of experts at SIFMA today.

Panelists Mark Baumgardner of The Options Clearing Corporation, Michael Mollemans of Daiwa Securities America, and Ed Obuchowski of Charles Schwab moderated by Manish Kimmel from the Financial Information Forum discussed how the upcoming Options Symbology Initiative (OSI) and the effects it will have on humans and systems for entering and processing options and their various contracts – which number around 350,000 now in the US market.

OSI effectively normalizes symbology for options using 21 characters of information for OCC and exchanges – the OPRA version uses 17 bytes – including root symbol, day/year/month of expiry, call/put, and strike price. The primary difference between the OPRA and OCC/Exchange versions are that OPRA uses five characters instead of six for the root symbol, combines the call/put indicator and numerical month into a single character encoded field, and uses seven characters for strike price instead of eight. All of these differences are common for OPRA’s existing systems.

In addition, trading of listed securities is considered faster so the plan to list options may actually increase the speed at which deals can be done – offset by some concern that the longer, more cumbersome identifiers might slow systems. Changes within internal systems from data input to transaction reporting will need to be tweaked – ideally not customized but enhanced programmatically – to process the new data and prove capabilities in upcoming industry tests starting September 2008 through February 2010.

Participants in the SIFMA Symbology Workshop echoed a major concern of the effect the transition will have on humans – not only in educating them so they understand the changes, but also providing new interfaces that will make the identification of options easy. A consistent approach across the industry is desired in the event a user (i.e. a customer or trader) changes institutions or uses an alternative interface.

It was noted there will be a long transition period where users will be given the option to use legacy specification methods as they learn how they relate to the new model. Similarly, there will be a challenge to interface designers to help speed input of the options parameters to reduce human-induced latency in the trading process.But the key focus is the end game – the ability to consolidate the current multitude of options chains into a single larger chain per option root – an activity that is expected to happen in the March-May 2010 timeframe.