White Paper: Considerations of a Continuous Trading Environment and Implications for Central Clearing of U.S. Listed Options

The U.S. financial market continues to expand as investors worldwide show increasing interest in trading U.S. assets. As we adapt to serve an increasingly global audience, there are many considerations for how our trading infrastructure can best support all market participants in a continuous trading and clearing environment.

As the sole central counterparty clearinghouse for U.S. listed options, OCC is actively exploring how to support extended trading hours in our ecosystem. Our latest white paper, Considerations of a Continuous Trading Environment and Implications for Central Clearing of U.S. Listed Options, provides our perspective on how the industry can achieve 24-7 trading through a phased approach, as well as specific areas to consider across the industry. 

We recommend a gradual transition to a 22-5 or 23-5 model, 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 our industry to examine key concepts and systems that underpin today’s markets, notably:

• 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. We are currently evaluating OCC’s rules within this context.

• 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. This could lead to aligned margin cycles among CCPs. 

• Global coordination: Expanded market and regulatory coordination, both domestically and internationally, would be critical to ensure consistent and enforceable rules. 

OCC has begun discussions with market participants, regulators and vendors to explore ways to tackle these necessary adjustments. 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.