The Options Symbology Initiative (“OSI”)
The Options Symbology Initiative (“OSI”) is a comprehensive, industry-wide plan to replace the existing method of identifying exchange-listed options contracts. Developed by a committee of industry representatives, the goal of the OSI is to create a naming convention for options series that will enable market participants to exchange accurate and consistent information that is better able to support non-standard options and this rapidly growing and increasingly complex market.
The OSI is a multi-faceted plan that requires the cooperation and coordination of many entities including all exchanges where US options are traded (AMEX, BOX, CBOE, ISE, NASDAQ, NYSE/Arca, PHLX), the Options Clearing Corporation (OCC) where options are cleared, and other industry utilities including DTC and NSCC who service the community of options traders and their clients. Similarly, vendors who support these markets with market data, trade order management systems, market making applications or back-office processing for example, must be well-prepared to facilitate their clients’ transition to the new methodology.
Most broker-dealers, hedge funds and other institutions trading options can expect to feel the effects of the new symbology standard. Figure 1 illustrates, at a high-level, the array of systems across the US options trade lifecycle that are likely to be impacted by changes in symbology.
Figure 1. US Options Trade Lifecycle
Firms that depend on vendor services for certain aspects of the trade process will rely on their vendors to make the changes necessary to accommodate the new symbology; however, the firms will need to address integration with upstream and downstream applications themselves. While each firm is different in terms of its internal systems and external interfaces, at a minimum, any process that relies on options trade and quote information, routes orders to an options exchange, interacts with the clearinghouse, or accesses a security master file for descriptive details, will warrant careful review. The scope of the effort has been compared by many firms to Y2K, the Euro conversion, or decimalization.
WHY HAS THE INDUSTRY DETERMINED THESE CHANGES ARE NECESSARY?1
The current processing method that has been in use for the past 25 years poses a number of limitations in today’s marketplace. The plan put forth by the Options Symbology Initiative Committee is intended to:- Decrease the number of errors in the front, middle and back office processes
- Represent the vast majority of listed options contracts using the same symbol as the underlying security
- Reduce corporate action symbol conversions
- Eliminate wrap symbols
- Eliminate the need for the LEAPS rollover process
- Reduce the frequency of coordination among exchanges for symbol elections
- Support the growth in product listings through additional expiration events and more flexible strike price designations
At the same time, the OSI Committee determined that this initiative provides an opportunity to eliminate the use of fractional strike prices; thus, going forward only decimals will be represented.
HOW WILL OPTIONS SYMBOLOGY CHANGE?
For equity options, index options, yield-based options, short-dated options, flex options and foreign currency options, a new Symbology Key which consists of 21 characters/bytes will replace the current configuration of the OPRA codes and fractional strike price values. The Symbology Key will rely primarily on the underlying symbol to provide consistency between the option and its related equity symbol. The Symbology Key will contain explicit expiration dates and decimal strike price values to eliminate the need for confusing alpha codes and the roll-over process. Calls and puts will also be designated in a straightforward manner, with an indicator of “C” or “P”. The new configuration for the Symbology Key is provided in Figure 2.
Figure 2. OSI Symbology Key
Symbol |
Year |
Month |
Day |
Call/Put |
Strike Dollar |
Strike Decimal |
|---|---|---|---|---|---|---|
6 bytes2 |
2 bytes |
2 bytes3 |
2 bytes |
1 byte4 |
5 bytes5 |
3 bytes |
________________________________
1Extracted from a document prepared for informational purposes by the Options Clearing Corporation, Sept. 2007.
2OPRA will support a five character symbol in all message formats.
3OPRA will continue to use the one character alpha code to represent both the month and call/put indicator in all data transmissions.
4The call/put indicator is combined with the month code in all OPRA message formats.
5OPRA will support a total of six positions and a decimal indicator (total seven bytes).
WHEN WILL OPTIONS SYMBOLOGY CHANGES BE IMPLEMENTED?
Beginning June 30, 2008, the OCC and US options exchanges will send and receive “OSI-compliant” data in a production environment. Before that date, firms that interact directly with OCC or the exchanges will need to alter incoming and outgoing record layouts accordingly. Market participants may use the OSI-compliant data to test their internal systems changes in order to be ready for industry testing that will begin in September 2009. Mandatory cutover to the new symbology is planned for February 2010. To allow broker dealers, institutions and vendors sufficient time to prepare for the new symbology, the US options exchanges, OPRA and utilities have all published specifications detailing the modifications they are making to various fields and record layouts, messages and report formats, as well as their schedules for testing, incremental transitional changes and full implementation.
WHAT IS NEEDED FOR YOUR FIRM TO BE READY?
The effects of the OSI may be far-reaching and deep within many firms. With so many mission-critical applications involved:
- How can you minimize the impact of these changes on end-users, particularly your customers and traders? For instance:
- What modifications must be made to a user input form or display screen? E.g. Is a pop-up display with point-and-click functionality preferable to a 21-character input field?
- Are changes best handled behind the scenes using an API and links to cross-reference tables?
- How will options be described on trade confirmations and customer statements?
- How can you be sure the integrity of your systems and data is preserved in the course of changing symbology? Plan for extensive testing to ensure continued reliability of:
- Front-office market data, order entry, trade management and execution processing systems
- Risk management, position tracking, compliance and reporting systems
- Back-office trade matching and clearing systems, books and records
- Historical data stores and ongoing adjustments for corporate actions
HOW CAN JORDAN & JORDAN HELP?
Each application will require its own analysis, its own solution, and its own project plan for implementation and testing. At a time when internal resources are SHORT, and the list of critical application changes is LONG, here’s what Jordan & Jordan can do for your firm:
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Compile an inventory of the specific applications and interfaces that may be impacted by the options symbology change, by working with your business, operations and technology staff.
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Document the business requirements for change in each of the impacted applications. Assist your staff in determining the most efficient approach that will have the least impact on downstream applications and end-users.
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Liaison with your vendors to understand their transition plans and determine the integration requirements and modifications your firm will need to make to adjacent processes.
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Apply proprietary tools and trained personnel to your Q/A and testing process for internal unit testing, as well as industry tests scheduled to begin in September 2009.
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Provide experienced, disciplined project management resources to ensure a smooth transition for your options processes to the new symbology.
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Provide ongoing guidance regarding programming and testing milestones required to meet the transitional changes dictated by each of the exchanges and utilities involved in the OSI.