STT enhances risk and margin management for zero-day expiring options

Rick Steves

“We understand the challenges our clients face in today’s market conditions and our solution provides them with a competitive advantage via its regulatory capability and advanced calculations. We are constantly enhancing our solutions to meet both industry and client demand.”

Sterling Trading Tech (STT) has launched an enhanced solution for managing risk and margin for Zero Day Options Expiration.

This advanced offering includes a proprietary order management system, a risk and margin system, and trading platforms for the capital markets worldwide.

0DTE (Zero Day to Expiration) options at record-high volumes

With an increase in the number of 0DTE (Zero Day to Expiration) option contracts offered by exchanges and record option volumes, managing expiration risk has become a critical task for firms. STT’s comprehensive product suite enables risk managers to adopt a proactive approach to both pre and post-trade risk management.

The pre-trade solution includes STT’s sophisticated Order Management System (OMS) rules engine, which allows firms to restrict trading on expiring option contracts at a configured time. The post-trade offering features STT’s Risk & Margin solution, encompassing Horizon Risk, which identifies accounts at risk of a deficit post-expiration, and pin risk analysis for all expiring options, both in and out of the money. Additionally, STT’s option closeout API assists in identifying options that should be closed to avoid a deficit post-expiration, thereby streamlining decision-making during critical end-of-day tasks.

Furthermore, STT’s custom house policy builder empowers firms to inform margin requirements in real-time based on their specific risk measures, facilitating best-in-class decision-making. Integrating risk and margin in a single system provides risk managers with the flexibility to make position liquidation decisions in real time, considering both margin and risk factors. The Option Closeout API offers an automated solution to prevent accounts from facing a margin call post-expiration.

“We understand the challenges our clients face in today’s market conditions and our solution provides them with a competitive advantage via its regulatory capability and advanced calculations. We are constantly enhancing our solutions to meet both industry and client demand,” said Andrew Actman, Managing Director of Business Development of Sterling Trading Tech.

Serving over 100 clients, including leading brokers, clearing firms, and prop groups in over 20 countries, STT offers customized solutions to meet client needs. Committed to delivering fast, stable technology along with exceptional customer service, STT provides trading platforms, OMS, and risk products to its clients.

Zero-day options: Gambling or investing?

At this year’s FIA EXPO 2023, Walt Lukken spoke about the explosion in options trading, particularly zero-day expiring options. Lukken mentioned that while this has attracted more people to options markets, customer protections should not be compromised.

“We want to make sure again, that the right investors are informed on the options and what the risks are for those things. And especially leveraged products,” Lukken noted.

Innovation was a recurrent theme, especially in the industry’s approach to volatility control mechanisms (VCMs). Lukken pointed out that these are best practices developed in consultation with global exchanges to maintain market order and disruptiveness.

At the end of the briefing, Lukken dismissed the idea that a tipping point might soon be reached where trading turns into gambling. “I have not heard that,” he stated, adding that the distinction between gambling and investing is clearly defined in the law.

The event served as a comprehensive update on various issues affecting the futures and derivatives industry, reflecting the changing dynamics and concerns as it navigates through regulatory landscapes and market innovations.

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