Opra outages cause consternation in options markets

Options traders and exchanges are furious with an arcane market infrastructure provider over outages that have temporarily blinded parts of the US equity options market in the past two weeks.

The Options Price Reporting Authority’s main post-trade data feed went down on October 19 and again on October 25, with a C-suite executive at a US options exchange describing the situation as “a headache”.

Market participants say it was the fourth such outage by Opra this year, for a feed widely used to gauge the current market price for a given options contract. The second outage lasted around half an hour, halting the main mechanism by which a National Best Bid and Offer (NBBO) for every listed contract is circulated around the options market.

Speaking at the Sifma Options Market Structure conference on November 1, Dina Thakarar, head of equity derivatives electronic sales at UBS, said it was incumbent on broker-dealers to inform clients they could be trading on incorrect quotes during data outages.

“I think that what we should be focusing on more is communicating to the end-user – to the institutional clients and retail clients – that there is an outage, or incorrect bid/offers on screens,” said Thakarar.

The frustration with these Opra outages is it handcuffs people – it handcuffs trading desks and it handcuffs our ability to commit capital to trades

Pat Luongo, Jefferies

“They have to be warned about it,” she said. “During the last one, UBS’s high-touch desk went out to all clients saying: ‘This is not good data to be trading on,’” she added.

Thakarar said retail investors should be better informed when the market data stream breaks. While the vast majority of retail trades are routed to consolidators, who themselves have direct data feeds into exchanges, the data raises questions about what quotes traders are viewing on their screens before execution.

“Maybe there should be a pop-up on retail investors’ trading screens to acknowledge that there is bad data they are going to be trading on,” she said.

Pat Luongo, head of options e-sales at Jefferies, who was speaking on the same panel, agreed the outages were causing problems. “The frustration with these Opra outages is it handcuffs people – it handcuffs trading desks and it handcuffs our ability to commit capital to trades,” he said.

Opra is jointly owned by the various US options exchanges. The system Opra uses to pump out data to the market is operated by the Securities Industry Automation Corporation (SIAC), itself a subsidiary of Ice.

Ron Hooey, a senior director for client execution quality and order routing at BNY Mellon Pershing, said on the panel that from a best-execution point of view, they saw a huge spike in exceptions during that period.

A source at a US options exchange confirmed that retail trader screens stop updating when SIAC has technical issues. But as nearly all retail options flow is routed via wholesalers, who themselves have direct data feeds into all the US options exchanges, an order placed based on stale market data “would still receive the best prices currently available in the market”.

“Wholesalers are consuming their real-time top-of-book market data directly from the exchanges, and do not solely rely on Opra to generate their view of the NBBO,” said the source.

The fact wholesalers have direct data feeds from exchanges “mitigates the risk of the retail trader receiving erroneous transactions,” they added.

In a post mortem report published on October 26, SIAC said the organisation “believes the root cause of the event is related to flow control parameters within the Opra system, which were adjusted … to prevent recurrence of the issue”.

The incident could be a sign that options market infrastructure is struggling to cope with the explosion of trading volumes over the past year. In 2023, exchanges began listing index options expiries for every day of the week, allowing intraday options trading to become more viable. Average daily volumes on Cboe exchanges, the largest US options bourse operator, rose 27% to around 3,743,000 in the third quarter compared with the same period last year.