March 2013 Newsletter

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In This Issue

Industry Insight: Shelly Brown

A day on the golf course eventually led Shelly Brown, Senior Vice President, Strategic Planning and Operations for The Miami International Securities Exchange, LLC (MIAX), to the options industry. OCC News interviewed Brown on his industry start, MIAX’s transition into the options market and more.

How did you get started in financial services, and more specifically in the options industry?

It’s a funny story. I met a trader on a local golf course in 1981. He told me a bit about the trading floor and it sounded very appealing to me. He invited me to see the CBOE trading floor, which I accepted. Within a minute of standing in one of the option pits, I knew that this was the career path for me. That same afternoon I was offered a position as a runner for about $550 a month! I started the following Monday as a runner for Chicago Corp. and I worked my way up through the business from there, eventually becoming an options market maker on the CBOE.

It is a dream come true for me to be able to use my knowledge and 30-plus years of experience to help build a new U.S. options exchange by joining the team at MIAX Options. We enthusiastically embrace the opportunity to influence the exchange trading experience for the trading public and the professional members of our exchange.

What is a memorable experience from your early days at CBOE?

The day that has to be the most memorable was Monday October 19, 1987, the Black Monday stock market crash. I was trading in the OEX, the S&P 100 index. The enormity of the move, the impact on people's lives in the pits, and the overall impact on the economy was overwhelming.

How would you categorize MIAX's market structure?

MIAX Options, a fully electronic market, uses a pro-rata style allocation methodology. The liquidity provider model is a traditional PLMM (Specialist) model with Directed (Preferred) order functionality. Our fee structure is conventional (no Maker-Taker), providing priority customer orders with fee-free executions.

What prompted MIAX to expand into the options business?
(MIAX became an OCC participant exchange in December 2012.)

The MIAX team saw an opportunity to improve on the existing market structure through technology and innovation. MIAX has created an ultra-fast trade engine with enormous throughput. That proprietary technology has allowed MIAX to implement safety features for our members, ensuring a safe and predictable trading experience. Price protections that are built into the trade engine afford all customers price certainty and virtually eliminate obvious errors. System speed and throughput offer liquidity and order flow providers the knowledge that they can update their markets quickly and efficiently even in times of market volatility. These same speed advantages are reflected in their notice of executions, allowing them to react more quickly, thereby reducing negative expectancy and while improving profitability.

What have been some of your observations about the industry's market structure thus far?

It is still very early in the MIAX lifecycle. We are in our initial rollout phase, having listed options on just 351 underlying securities. As we complete our rollout of the top 600 multi-listed option symbols (by volume), we will focus on our day two initiatives including enhanced trade-engine functionality for our members and new and unique market innovations. Those innovations may include system functionality, order types and/or new products.

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Conference Celebrates 40th Anniversary of the Industry

The 31st Annual Options Industry Conference, taking place April 24-26, at the Green Valley Ranch Resort & Spa in Las Vegas, Nevada, is the preeminent event for derivatives professionals. The conference brings together engaging panelists and speakers to cover the most important issues facing the industry. Program highlights include "A Wish List from the Buy-Side," "Options Exchange Leaders Panel," "Keeping Up With Fees: The Transformation of the Fee Structure and Its Challenges," "What's Trending in Retail," "Restoring Investor Confidence," and much more.

This year, the conference is celebrating a milestone — the 40th anniversary of the options industry. Don't miss this opportunity to join institutional and retail firms, trading professionals, buy-side institutions, technology providers and exchange leaders. Listen to the keynote speaker, former Navy Seal Robert O'Neill, and enjoy optional events like the golf tournament at Rio Secco, high-speed karting at Pole Position Raceway and an afternoon of Voluntourism helping out Three Square Food Bank. To register or read more about this event, click here.

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From the Hill

The run-up to "the sequester," which gradually began implementation March 1, brought the definition of hyperbole to the next level, a significant achievement in Washington. Pronouncements of impending sequestration disaster were made daily by President Obama and his Democratic allies.

While most Congressional Republicans were delighted to see spending reduced through the sequester, because of the outsized impact it has on defense cuts, they would have preferred to use a figurative scalpel rather than a meat cleaver to cut spending. But they stood firm nonetheless, unwilling to give in to President Obama's demands that the sequester be repealed with a combination of cuts and additional revenues.

"OCC’s Washington staff has been hard at work meeting with Ways and Means Committee staffers to explain how the draft proposal would negatively impact the options industry and make the taxation of listed options more complicated for individual investors."

Other Congressional priorities also have real consequences, none more real to the options industry than the House Ways and Means Committee Republican draft proposal on reforming the tax treatment of derivatives. In its role as leader of the U.S. Securities Markets Coalition, OCC's Washington staff has been hard at work meeting with Ways and Means Committee staffers to explain how the draft proposal would negatively impact the options industry and make the taxation of listed options more complicated for individual investors.

Ironically, the draft tax proposal is intended to simplify the tax code. But luckily for us in the industry, Congress has just begun the long process of examining tax reform that may or may not end up in a bill being passed out of the House this year. In an indication of the priority placed on tax reform, Speaker Boehner has assigned the first bill introduced by the House, H.R. 1, as the official bill number of whatever tax reform package emerges from the Ways and Means Committee later this year. Across the Capitol, Senate Finance Chairman Max Baucus (D-Montana) is expected to discuss his tax reform legislative strategy in more detail later this spring.

As noted, the Coalition, working closely with its member exchanges, has already met with committee staff and with the staff of a number of Ways and Means members. Regular conference calls are being held to inform stakeholders of our progress and a formal comment letter on the draft proposal is being prepared by Bill Paul, the Coalition's tax counsel.

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OCC Kicks Off 2013 Charity Drives

Each year, OCC identifies two charities that can benefit from the company's community outreach efforts.

OCC selected Opportunity Knocks (OK) as Chicago's 2013 charity project. OK is an organization dedicated to providing opportunities and resources to individuals with developmental disabilities so they may pursue their educational, occupational and social interests. The majority of OK's participants are between the ages of 15 and 30. OCC's hope is to raise enough funds to help OK's Life Shop program, which will develop the job skills of persons with developmental disabilities.

The Rocky Top Therapy Center was chosen as the Keller Business Office's 2013 charity. The organization provides therapeutic services through horseback riding for individuals with physical, mental or emotional disabilities or challenges. Children who receive the services range in age from 4 through 18. OCC's goal is to provide up to eight children with a 10-week course of therapy.

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Mark Your Calendar

April 24-26, 2013

The 31st Annual Options Industry Conference, at the Green Valley Ranch Resort & Spa in Las Vegas, Nevada

April 28-May 1, 2013

Securities Industry and Financial Markets Association (SIFMA ) 40th Annual Operations Conference and Exhibit in Boca Raton, Florida

Clearing News & Resources

Volume Update
Interested in reading about what is happening with options volume? Click here for OCC's monthly volume press release.

2012 Annual Report
The 2012 OCC Annual Report is now available online. This year’s theme, The Foundation for Secure Markets, features the many ways OCC’s foundation as a custom-driven clearing organization ensures reliable clearing, settlement and risk management services.

OCC News Archive

Click here for prior issues.

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The information contained in this newsletter is for general information purposes only. Although every attempt is made to ensure the accuracy of the information, OCC assumes no responsibility for any errors or omissions. All materials pertaining to rules and specifications are made subject to and are superseded by the By-Laws and Rules of OCC.