U.S. Options Industry Marching Toward 21-Character Symbols
March 10, 2008
As the U.S. options industry braces for a nomenclature overhaul, the Options Clearing Corp. (OCC), exchanges, member firms and service providers are starting the laborious process of adapting their internal applications to conform to a 21-character symbology key.
Though firms are required to accept options data in the new format by the end of June, they won't need to send it until July 31, 2009. From then until Oct. 31, actual options symbols will be consolidated, or changed into the new nomenclature.
"With trading volumes rising exponentially and new products on the horizon, the current nomenclature, in effect for over two decades, is no longer effective," said OCC vice president Mark Baumgardner at a recent Securities Industry & Financial Market Association (Sifma) conference on options symbology in New York.
The systems changes required to shift from a five-character designation is being compared by some to the Y2K efforts. Making preparations more cumbersome is a separate decision by the Nasdaq Stock Market to switch its subordinate securities--preferred stock and warrants--to a symbology that includes special characters in September.
The OCC, the U.S. clearinghouse for listed options, has spearheaded the Options Symbology Initiative (OSI) since 2005. Next year it will conduct an industrywide test, including its member firms, exchanges and third-party service providers.
The first phase, to take place in March and April 2009, will simulate the July 31, 2009 implementation; the new formats and validations will be used rather than the Options Price Reporting Authority (Opra) codes, and equity option strike prices will be converted to explicit decimals. In phase two, scheduled for May and June 2009, the current symbols will be consolidated.
Today, listed options are named using as many as three alpha characters to indicate the root symbol and two characters to identify the expiration month, call-put indicator and strike price. But that naming system does not provide sufficient information on underlying securities. It also cannot accommodate newer types of options such as long-term equity anticipation options (Leaps) and flexible exchange (Flex) options.
Because exchanges have had to design their own symbology for new option types, broker-dealers, market data vendors and other service providers have had to tinker with their operating systems and devise manual work-arounds.
Under the OSI nomenclature, six characters will represent an option contract's symbol; two characters each for the maturity day, month and year; one for the call or put indicator; five for the strike dollar; and three for the strike price.
Proprietary IDs Will Stay
The goal is to eliminate the exchanges' ad-hoc symbols. But 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.
Opra will at the very least switch from five to 17 characters--a condensed version of the OSI symbology. Firms using Opra feeds to support their trading, analytics and pricing applications will need to convert those symbols to both the OSI code and their proprietary IDs.
For Fiserv subsidiary CheckFree Corp., the symbology change will affect its APL software for separately managed accounts and Global Investment Management portfolio accounting system. "We have leveraged the work we completed for Nasdaq's separate symbology initiative by conducting a thorough analysis of all our products which require us to change the ticker symbols we use," said Cheryl Nash, SVP of CheckFree Investment Services.
