(FLASH FRIDAY is a weekly content series covering the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
Record options activity and rapid product expansion, from 0DTE contracts to cryptocurrency-linked derivatives, are reshaping market structure. With extended trading hours, increasing retail participation, and new trading models coming online, regulatory initiatives are playing a greater role in shaping risk management and market transparency.
James J. Angel, associate professor and academic director of the FINRA CRCP program at Georgetown University, offered a measured assessment of the current regulatory environment. “Fortunately, I don’t think our current group of regulators have a huge agenda for the options industry,” he said. “That being said, further regulatory initiatives will cause collateral damage.”
Angel pointed out that crypto regulation creates ripple effects. “As crypto currently constitutes an important regulatory focus, we can expect faster approval of crypto-related options,” he noted. The reorganization of the consolidated audit trail will impact the options markets both in terms of reporting requirements and fee structures.
Angel acknowledged that 0DTE options “may not generate much regulatory concern from the current SEC. However, when there is an inevitable blowout in the markets, some attention may be given to it.” This highlights the reactive nature of some regulatory responses, with frameworks often catching up with market innovations.
Defining Investor Protection
The question of balancing innovation and protection requires clarifying what investors actually need to be protected against. Angel described a hierarchy of protections: “When we discuss investor protection, we need to be clear about what we are protecting investors from. The most important thing is to protect investors from fraud. Next, we need to make sure they have the information they need to make good investment decisions. We need to protect them from the failure of intermediaries who could cause their assets to disappear.”
Beyond these fundamentals, he identified concerns about “abuses of sales practices that would cause people to do stupid things” and whether “investors can really understand some very complicated products.” The most philosophically difficult question: “To what extent do we want to protect people from their own stupidity?” »
Angel emphasized that “we already have a well-developed options regime,” but suggested the conversation needed to be broadened. “However, we also need to worry about other very complex products and discuss the right way to protect investors with these products.”
His proposed solution combines education and engagement: “As a teacher, I know that the only way to make sure people really understand something is to give them a test. One solution would be for a brokerage firm to offer a multiple-choice quiz of 5 or 10 questions before moving on to the next level.”
Angel envisions investors “leveling up” like video games, earning experience points through quizzes and trading. “While moralists decry gamification in investing, it can be very useful in education and in reducing financial illiteracy. The natural desire for gold stars and status will lead people to do what is necessary to gather the information they need.” He added that “investors can brag on Reddit about being a ‘Schwab Level 5’ or ‘IBKR Level 17’ trader, creating a more educated clientele and reducing broker risk.”
Biggest gap: the regulatory structure itself
Asked about regulatory gaps, Angel pointed not to missing rules but to structural dysfunction. “The biggest regulatory gap in the United States is caused by the overwhelming mess of overlapping agencies. We have more than 100 financial regulators in the United States and they don’t always work well together.”
He has been particularly critical of the SEC-CFTC divide: “The endless battles between the SEC and CFTC over who regulates what are a joke. We are the only developed country on the planet that has separate regulators for commodities and securities.” The historical reason? “The only reason we have a separate regulator today is because SEC Chairman in the early 1970s, Ray Garrett, did not want to be responsible for regulating Chicago’s futures wells and lobbied Congress NOT to gain jurisdiction.”
Professor Angel called for comprehensive reform: “We need to think not only about the SEC/CFTC and the CFPB, but also the role of SROs, states, insurance, and banks. It’s heavy lifting, but as they say, the longest journey begins with a single step. If we don’t start the conversation, we’ll never fix the mess.”
He cited the GENIUS bill as an example of the problem: “It gives stablecoin issuers the choice between literally (!) 55 different regulators. What could go wrong?”
“If we put a good regulatory structure in place, regulators will probably make better decisions,” he concluded.
