(Bloomberg) -- The world’s largest derivatives-clearing house is seeking to introduce fresh margin requirements on Wall Street firms as the frenzy in zero-day options shows no sign of letting up.

Options Clearing Corp. is looking to harden rules on intraday margins at brokers and dealers in the event their risk exposures breach certain thresholds, according to a spokesperson. OCC is also proposing a monthly add-on to their collateral contributions to ensure the smooth functioning of markets, among other obligations, the person said.

It’s the latest push from industry supervisors to secure market discipline amid the trading frenzy in equity contracts that expire within 24 hours. While the proposed rules apply to options of all stripes, derivatives with zero days to expire, known as 0DTE, now make up half of the S&P 500’s total options trading. That’s spurred strategists at JPMorgan Chase & Co. to warn the activity threatens to destabilize the broader equity landscape, a scenario that’s received pushback from the likes of Cboe Global Markets. 

“A consequence of the initiative will be that firms will need to tighten up their intraday portfolio risk exposure as well as be prepared for immediate capital demands,” said Justin Zacks, vice president of strategy at Moomoo Technologies Inc., which last November lowered commission fees on single-stock options to zero. An “increase in the risk profile may result in both an intraday margin deposit requirement but maybe more importantly a longer-term deposit obligation with the OCC.”

The OCC’s proposals, subject to changes after industry feedback, require approval from the Securities and Exchange Commission. The new measures were previously reported by Risk.net.

The Chicago-based organization provides central clearing and settlement services across exchanges and includes more than 100 members. 

Specifically, the OCC is proposing member firms, which show bigger increases in risk exposures in the prior month, will be obliged to contribute more at the start of the following month to a buffer fund that’s designed to mitigate spillovers in the event of market turmoil.

“OCC rules typically apply to everyone,” said Steve Sosnick, chief strategist at Interactive Brokers. “And since ‘everyone’ seems to be getting more involved in ultra-short term options trading, this is a recognition that the rules for all participants need to adapt accordingly.”

The options-trading boom has caught the attention of regulators, with the Federal Reserve including special questions about risk-management practices and client activity in a survey published in September 2023. Notably, it found that two fifths of the surveyed dealers don’t require the counterparty to stump up collateral for 0DTE trades, while the rest do so before the end of the trading session — and only when market volatility is elevated. 

In OCC’s proposal, a margin call could be triggered when a firm’s intraday risk levels spike above the average of the historic daily peaks by a certain threshold, according to the spokesperson. A three standard-deviation move is one threshold that was discussed, the person said.  

JJ Kinahan, president of Tastytrade, supports OCC’s motion to shield the industry from any market fallout. Though he’s concerned that too restrictive measures would hit trading activity more broadly. 

“Because everyone has to put down more capital, you have to disallow people from trading down there in a way that you don’t have to now. Overall volume could be stifled,” he said. “If volumes go down, you hurt the market at the end of the day.” 

--With assistance from Isis Almeida and Sam Potter.

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