In a new white paper, the Options Clearing Corporation (OCC) offers its perspective on how the industry can achieve 24-7 trading through a phased approach.
The paper, called “Considerations of a Continuous Trading Environment and Implications for Central Clearing of U.S. Listed Options,” recommends a gradual transition to a 22-5 or 23-5 model. It also suggests leaving a window for trade reconciliation and end-of-day processing, and maintaining weekends for system maintenance, backups and data deployments.
This transition would require the industry to examine key concepts and systems. They include:
- Payment and settlement: Custodial and settlement banks, as well as services like Fedwire and the NSS, would likely need to observe longer operating hours.
- Mobility of collateral: Distributed ledger technology and tokenized assets could improve liquidity mobility and support delivery versus payment.
- Operational readiness and resilience: Market participants would need to modify their operational playbooks to support trade capture, confirmation, risk monitoring and settlement.
- Liquidity and market depth: Extended trading hours can have significant impact on market fragmentation, trading liquidity and margin requirements, as well as on market makers with subsequent effects on price discovery.
- Options parameters and options lifecycle events: The standardized parameters of listed equity options may have to be adapted. The industry would also have to define a trading day and delineate between ‘traditional’ hours and ‘extended’ sessions.
- Investor protections: Regulators may consider changes to mandated risk flags and market surveillance coverage, as well as guidance on best execution and suitability rules. Venues will need to ensure transparent order handling and pricing practices across all trading sessions.
- Interoperability among FMIs: OCC would evaluate potential adjustments to existing cross-CCP agreements or potential new agreements.
- Global coordination: Expanded market and regulatory coordination, both domestically and internationally, would be key to ensuring consistent and enforceable rules.
“OCC has begun discussions with market participants, regulators and vendors to explore ways to tackle these necessary adjustments,” Andrej Bolkovic, CEO at OCC, stated. “We remain committed to our role at the center of a secure and resilient listed options marketplace, and we invite you to read more about our perspective in our paper. We also encourage you to reach out with questions, concerns or ideas for how we can move forward together.”