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Opening Remarks as Prepared for SIFMA’s Market Structure Conference: Listed Options

Remarks by Joseph Seidel, Chief Operating Officer for SIFMA, as prepared for delivery at SIFMA’s Market Structure Conference: Listed Options

Good morning.  I’m Joe Seidel, Chief Operating Officer at SIFMA, and it is my pleasure to welcome you to day one of our 2023 Market Structure Conference.  Today’s event is focused on the listed options market, where we have a lot to talk about.  I hope to see you all back here tomorrow for day two, when we will focus on equity market structure.

Before we begin, I would like to thank our speakers, and of course all of you for being here today.

With approximately 62 firms, SIFMA’s listed options trading committee engages in critical issues impacting the market with the goal of enhancing the investor experience and ensuring that the markets remain liquid, efficient, fair and resilient.

I’d like to recognize and thank Andrew McLeod, of Morgan Stanley, chair of the committee, and co-chairs Ovi Montemayor of Schwab and Gary Hunt from Bank of America, for their work on today’s conference and ongoing leadership.

The options market offers investors flexibility in terms of strategies offered, providing investors the tools needed to meet a host of different investment objectives and risk tolerances. Options can protect portfolios or improve returns in rising, falling or neutral markets, or a sharp move in markets in either direction. Most options strategies possess limited risk but also limited profit potential. And they are often used as a risk management tool to hedge an investment portfolio and limit potential losses. In short, while options have been mischaracterized by some recently as a short-term, risky, speculative tool, in reality, the vast majority of investors use them as part of a well-considered strategy to meet their investment objectives.

Options trading remains at high levels.  In September 2023, volume averaged 42.2 million contracts, down from the record peak of 46.5 million contracts in February 2023 and only slightly less than the volume in October 2022, which averaged 42.5 million contracts – the fifth highest month ever.

This is an important market which plays a crucial role in investors’ overall trading strategies.  This is why it is essential that regulation to protect investors in the market does not also harm the very investors it is designed to protect.

Throughout the last two years, stakeholders, academics and members of Congress from both sides of the aisle have expressed concerns with the volume and pace of new rule proposals from the SEC.  If you look at the Agency Rule List published by the Office of Management and Budget, the SEC is on track to propose and finalize 63 new rules by the end of Chair Gensler’s first four years in office.  This represents a dramatic increase in the pace of rulemaking from the previous two Chairs, Mary Jo White and Jay Clayton, who finalized 22 rules and 43 rules, respectively, that they had proposed during their terms.  Of the number of rules proposed over the last two years, only eight have a specific Congressional mandate.

SIFMA is very concerned about the volume and speed of regulatory changes proposed and already finalized by the SEC and the negative consequences it could have on the markets, investors and our economy.

The proposals to completely overhaul U.S. equity market structure are of particular concern. It remains unclear what impact it could have on the options market.  The proposed best execution rule is impractical for this market. Today, many investor orders are routed to exchange price improvement auctions where they are guaranteed an execution. It is impractical to consider alternative off exchange pools of liquidity since unlike the equity markets, all trading occurs on exchanges.  SIFMA is still exploring what finer ticks or reduced access fees could mean for this market, or what a Rule 605 for options might look like. The bottom line is that the potential cumulative and interactive effects of these proposals are not fully understood and have not been subject to sufficient cost-benefit analysis.  Our markets should not be transformed by rushed and poorly written rules, especially when there is no market failure the rules are designed to solve.

Our morning panel today will explore listed options market structure in greater depth, and our afternoon regulation panel will cover what the SEC’s firehose of regulation means for options.  The exchange leaders panel features 5 exchange groups, ranging from the brand new MEMX, launched in late September of this year, to those who are long-established and have established significant market share—all have interesting perspectives to share. We will also hear an update on trends in retail trading, and Bloomberg’s Larry Tabb will provide a data-rich update on the state of the options industry and its market dynamics.

And now it is my pleasure to introduce Tom Sosnoff, our morning keynote speaker.  Tom is the Founder and CEO of tastylive and is a true trailblazer in the online brokerage industry, driving innovation and financial education for investors of all levels.

A former floor trader, Tom became one of Chicago’s most well-known serial entrepreneurs in fintech when he built a breakthrough options-trading platform, thinkorswim, later sold to TD-Ameritrade for $750 million.

Leveraging over 20 years of experience as a Market Maker for the Chicago Board Options Exchange and one of the original OEX traders in the S&P 100 Index pit, Tom pursued his vision to educate retail investors in options trading and build a superior trading platform and a brokerage firm that specialized in options. With that vision in mind, tastylive was founded in 2011. Six years later, tastytrade launched with Scott Sheridan at the helm as CEO.

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