Symbology Initiative Overview
Today, many organizations that support trading in listed options are restricted in their ability to identify and process exchange listed option contracts. These organizations typically use a three to five alpha character representation. The first one to three characters identify the option root symbol and the remaining two alpha characters identify the expiration month, call/put indicator and strike price (IBMER = IBM May 2006 90 call).
This method has been used for over 25 years and poses several limitations in today's marketplace. The limitation of three characters to represent the option root creates inconsistency with OTC securities and has resulted in the use of illogical identifiers in both the options and underlying securities markets. The month and call/put codes assume expiration occurs in the following sequential month and assumes a single expiration day.
Long-term Equity AnticiPation Securities (LEAPS®) have never been standardized under this methodology. Similarly, the introduction of exchange listed flexible (FLEX) contracts necessitated a different symbology to address these limitations. These limitations have fueled the proliferation of one to three character root symbol designations needed to support the industry and has impacted the securities markets as a whole.
In July of 2005 the OCC Board of Directors asked OCC staff to work with industry representatives in defining a reasonable timeframe to eliminate the use of OPRA codes in the listed options markets. OCC staff was also instructed to ensure that all option strike prices be represented in decimal format at the same time. Once a plan has been developed, the options exchanges and OCC will jointly mandate a timeframe when all market participants must comply.
A committee was formed to develop a plan. Representatives from broker dealers, exchanges, vendors and OCC actively participated. The Symbology Committee was instructed to develop an implementation plan to bring the options industry into compliance and to include a definitive timeframe.
The Committee published a plan in May 2006 and provided a 120 day comment period. Seven comment letters were received and the responses were crafted. The plan was updated based upon the comments received and was approved by the OCC Board of Directors on December 5, 2006.
The end of January 2007 also marked the deadline for commitments by exchange and OCC staff members to provide enhanced record layouts to be used throughout the testing and implementation phases of the project.
In August 2007, OCC and Exchanges also published additional detailed individual implementation plans.
Detailed test scripts for scripted industry testing were approved and published in September 2008. The five month Scripted Industry Testing effort completed successfully in January 2010.
Committee members next turned their attention to the February 12, 2010 implementation date which was executed with no reported problems. The committee is now focused on the consolidation events which will occur between March & May 2010.
Market constituents are encouraged to budget resources for this effort throughout 2007, 2008, 2009 and 2010 to ensure a smooth transition to the new simplified environment.
