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Regulatory Uncertainty Clouds Options Market Innovation

Jun 17, 2024

John Lothian

John Lothian

Executive Chairman and CEO

David Dooman, head of options at Dash Financial, a subsidiary of ION Group, expressed concerns about the impact of regulatory uncertainty on the options markets during an interview at the Options Conference in Asheville, NC.  Dooman highlighted several key issues stifling innovation and offered recommendations to address the industry’s challenges.

Regulatory Burden Hampering Progress

Dooman emphasized the unprecedented regulatory agenda from the Securities and Exchange Commission (SEC), including proposals for overhauling Rule 605, T+1 settlement, and competition rules. He said, “Resources are finite, and compliance and regulatory resources always come first, leading to a slowdown in innovation.” The pattern day trading rule, which restricts active trading for accounts below $25,000, was cited as an example of outdated regulation hindering market participation for younger and minority investors.

Addressing Operational Inefficiencies

One major concern raised by Dooman was the Options Regulatory Fee (ORF), which he claimed creates perverse incentives for exchanges to charge fees without providing commensurate value. He also criticized the Options Listings Procedures Plan (OLPP), suggesting that a significant portion of listed options never get traded, wasting bandwidth.

To alleviate these issues, Dooman recommended collaborating with market participants and leveraging their feedback. He advocated for streamlining the OLPP to reduce the number of listed options and revisiting the ORF fee structure.

Embracing Technological Solutions

Dooman highlighted the need for technological solutions to address the growing order flow from institutional investors. He praised Dash’s Exchange Traded Fund (ETF) mechanism, which provides significant price improvement for institutional orders, and expressed optimism about the potential of Request for Quote (RFQ) models to automate block order workflows.

Advice for Chairman Gensler

If given the opportunity to dine with SEC Chairman Gary Gensler, Dooman would emphasize the importance of collaboration between regulators and market participants. He said he would tell Gensler, “Work with us, please, to take our feedback on what we think needs to be changed and how we can all collectively improve to do a better job, including helping the regulators do a better job enforcing the rules that are in place.”

Ether ETF Prospects

Regarding the prospects of an ether ETF, Dooman acknowledged the need for SEC approval and a waiver from the Commodity Futures Trading Commission (CFTC). While recognizing the regulatory hurdles, he expressed optimism, saying, “There are too many investors, whether institutional, retail, or otherwise, involved in the crypto markets… to not have some sort of risk offset.”

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