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OCC Completes US Market Tests in Preparation for OSI, But is Enough Data Available?

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The February deadline for the launch of the Options Symbology Initiative (OSI) is fast approaching and the Options Clearing Corporation (OCC) has been conducting a battery of tests over the last couple of months in the US market to test the industry’s level of preparation for the new 21 character codes. According to the OCC, the tests thus far have gone well and last month saw the commencement of the mandated scripted industry testing, which is due to be completed in January.

The final conversion date for the new symbology is 12 February 2010 and the OCC seems confident that this deadline will be met. No data has been released by the OCC about these industry tests as yet, but it did confirm that the September beta test was “successful”, although the clearer yet again failed to supply data to support this claim.

At the end of September, conducted a voluntary beta test during which more than 6,000 trades were submitted by 32 OCC clearing members through the seven options exchanges. The clearing members involved in the test are the main players in the space and account for 78% of the year to date cleared options volume. Trade and post-trade data was processed through the OCC Encore clearing system with cleared data being delivered to participating clearing members.

The beta test was designed to highlight possible technical issues associated with clearing member, exchange and the OCC test environments in preparation of the scripted industry testing. While some issues occurred with exchange start-up and technical communication between the exchanges and the OCC, those issues were resolved on the test date and not related to the OSI key, said the clearer. The test allowed clearing members to process OSI compliant data for downstream testing and validate the hand off of data using the new OSI key between clearing members, exchanges and the OCC.

There is some speculation in the market about just how successful the testing process has been, especially given that no figures are available to assess the situation. Some participants in the testing process themselves have been sceptical and one said the tests were a “failure”.

As noted by A-Team Group in July, the changes to firms operations as a result of the OSI are all encompassing and likely very costly. It is no surprise that hiccups are occurring on the way to the February deadline; after all, achieving success requires the coordinated testing and perfectly synchronised implementation of all parties involved. Every application and interface that deals with options will be affected by the changes and firms need to make sure these systems are all able to read and process the new character codes: a significant task indeed.

It would be helpful therefore if the OCC provided more information about the testing process itself in order to illustrate the scale of the challenge and allow firms involved to benchmark their progress.

The OCC was selected earlier this year to operate the new symbology allocation system, which is being introduced as an alternative standard to the Options Price Reporting Authority (Opra) code by 2010. Last year, the Financial Information Forum (FIF) estimated that the cost of its introduction would total around US$250 million.

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