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Options Symbology Initiative Delayed

The Options Clearing Corp. (OCC) said Wednesday that a committee comprised of representatives from broker-dealers, exchanges and vendors has voted to extend by six months the deadline for U.S.-listed options to adopt 21-character symbols.

According to the OCC, the U.S. clearinghouse for listed options, firms will still need to be able to accept options data in the new format by the end of June, but now they won’t have to send it until Feb. 12, 2010, rather than July 31, 2009. That is when options symbols will begin to be consolidated, or changed into the new nomenclature.

Initially planned to end in October 2009, the transition of the symbols from five characters will finish in May 2010, giving firms additional time to adapt an array of internal applications for the change.

The options symbology committee reached its decision by consensus on a conference call, according to OCC vice president Mark Baumgardner. The OCC board, which includes representatives from five of the six U.S. options exchanges as well as nine correspondent clearing firms and a company not in the industry, had recommended the move, which represents a reversal of the utility’s stated intention that the Options Symbology Initiative (OSI) not be sidetracked.

“The exchanges and firms ultimately wanted more time for internal testing and wanted to spread out the development costs of the project for another year,” said Baumgardner. “The two large broker-dealers which dissented expressed concern about higher costs and industry apathy in moving ahead with the Options Symbology Initiative.”

Baumgardner emphasized that despite the new timetable, the OCC board is still committed to the OSI, which has been underway since the options symbology committee was created in 2005. The OCC will postpone industrywide testing, originally slated for March through June 2009, to October through January 2010.

It remains to be seen whether the options exchanges will push back their own testing plans with members, many of whom have said they are eager to get ready for the OSI ahead of schedule. Firms need to prepare their in-house systems before they can engage in industrywide testing.

The current nomenclature, in place for over two decades, does not provide sufficient information on the underlying securities and cannot accommodate newer types of options. Because exchanges have had to designate their own symbology for such options, broker-dealers, market data vendors and other service providers have had to make changes to their operating systems and devise manual work-arounds. The new nomenclature will include an explicit series key and decimal strike prices.

With the symbology change comes substantial preparatory work, which many have likened to Y2K preparations. Exchanges, firms and vendors will need to alter their security master databases, pricing databases, options analytics systems, trade processing and clearing systems, and compliance systems.

Though neither the OCC nor the options symbology committee have disclosed a price tag for the initiative, anecdotal evidence indicates it could exceed $5 million for trading firms with large books of business in listed options or correspondent clearing firms. Firms are also preparing for Nasdaq’s change in symbology for subordinate issues, expected in September.

“The extension of the OSI project is absolutely necessary as firms are not ready, nor do they have the funds allocated, for a project that is not the way to ensure accurate options series data,” asserted Lee Clifford, president of options data management company SFB Market Systems (SFBMS) in Thorofare, N.J. Clifford believes the project will be further delayed.

Though OCC officials have said that software vendors such as SFBMS could suffer as a result of the OSI, Clifford said all the options exchanges will continue to use her company’s Symbol Manager to manage the creation and storage of options symbols and strike prices. She added that the software will also still be used by the exchanges and market players to feed and update their security master files for U.S.-listed options. According to Clifford, SFBMS’s software is already compliant with the OSI as it accommodates decimals and explicit expiration dates.

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