Y2010 Problem: Firms May Not Be Prepared for New Options Symbols
July 20, 2009
In seven months, securities traders may not recognize their options any longer.
That's when ticker symbols for listed options will expand from as few as three characters to as many as 21 numbers and letters.
Doesn't sound like a big deal. Just more information in each symbol. Yet some industry experts are sounding an alarm over the potential lack of preparedness by fund managers and small to mid-tier broker dealers.
Firms which can't accommodate the new 21-character code will not be able to trade options electronically or price them. They might even create erroneous trades.
"For a fund manager or brokerage doing only a handful of transactions such a scenario might not be financially troubling,'' said Michael Hartig, a managing principal at New York financial services consultancy Capco, during a July 15th webinar. "However, for firms handling several hundred or thousands of orders a day, the results could easily be cost prohibitive representing millions of dollars worth of potentially lost revenues."
The 21-character symbols being spearheaded by the Options Clearing Corp. (OCC)--the clearinghouse for U.S. listed options--will be introduced in February 2010. The current three- to five- character codes will be completely eliminated in May.
Switching over to a new symbology will be no easy task. Options exchanges, financial firms, data vendors, service bureaus, and clearing firms must change their security master databases, pricing databases, options analytics systems, trade processing and clearing systems, and compliance systems to store and process the 21 characters. Pershing, the financial services outsourcing arm of Bank of New York Mellon in Jersey City, N.J., estimated that nearly 40 different applications will be affected.
Market data vendors, software providers and financial services firms say they will have to create proprietary codes to identify the contracts for client reporting and processing purposes. Many companies' internal applications feed off of security master files, which were designed to accommodate only 9- or 12-digit alphanumeric codes.
The Options Price Reporting Authority (OPRA), which tracks options prices, said it will switch to a condensed version, comprising 17 characters. Firms using OPRA feeds to support their trading, analytics and pricing applications will still need to convert those symbols to both the OCC code and separate proprietary identification codes.
"The multiple OCC and OPRA standards, in conjunction with the new formats from market and reference data vendors, increase the complexity for all of the impacted market participants and reinforces the need for development of comprehensive test scripts and rigorous end-to-end testing by all financial firms trading or processing options," said Hartig.
To help firms prepare, the OCC has planned four tests between the clearinghouse, options exchanges and member firms in October, November, December and January. The OCC has indicated it will help its members get up to speed with their preparedness and certify when they are ready. All of the options exchanges have also said they will test separately with their members.
That still leaves fund managers and introducing brokers to fend for themselves when testing with executing brokers, clearing firms and service bureaus. "We don't think that buy-side firms are up to speed on the changes," said Dave O'Marra, principal consultant with Capco, who also spoke at the webinar.
