Wall Street Revises Rules to Speed Up Options Trading on New Ipos

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Wall Street Revises Rules to Speed Up Options Trading on New Ipos

Leading Wall Street exchanges have expedited investor access to options trading for newly listed companies, a development that took place quietly over the summer. The revision has shortened the post-IPO waiting period for options trading from four sessions to a mere two.

This change was notably observed in several major IPOs this month. Arm Holdings (NASDAQ: ARM ) PLC, Maplebear Inc. (also known as Instacart), and Klaviyo, Inc., all began options trading just two days after their shares started trading. This is a significant shift from the previous rule that required a longer waiting period.

The rule modification underscores the increasing importance of options trading in capital markets. Since 2019, volumes of options contracts have doubled, becoming an essential component of both institutional and retail investment strategies. The changes are expected to offer investors deeper insights into market sentiment, which could assist them in navigating the typically volatile early days of a stock's trading.

Investors have been quick to leverage this new rule. For example, Instacart saw approximately 23,000 options contracts traded on its second day of share trading. These contracts were evenly split between calls, betting on a stock rise, and puts, predicting the opposite. Arm Holdings experienced even more activity with three times the volume of Instacart on its first day of derivatives trading, predominantly driven by bearish bets. Klaviyo saw less activity with an open interest close to 1,000 contracts on its first day, despite possessing a market capitalization similar to Instacart.

The revision in rules marks a significant evolution in the trading landscape as it allows investors access to data previously unavailable during a company's initial days of trading.

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