(FLASH FRIDAY is a weekly content series looking at 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 crypto-linked derivatives, are reshaping market structure. With extended trading hours, rising retail participation, and new exchange models coming online, regulatory initiatives are playing a bigger 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 see our current crop of regulators having a huge agenda for the options industry,” he said. “That being said, there will be collateral damage from other regulatory initiatives.”
Angel pointed to crypto regulation as creating ripple effects. “As crypto is a big regulatory thrust right now, we can expect more rapid approval of crypto-related options,” he noted. The re-architecting of the Consolidated Audit Trail will impact options markets in both reporting requirements and fee structures.
Angel acknowledged that 0DTE options “may not cause much regulatory concern from the current SEC. However, when there is the inevitable blowout in the markets, there may be some attention paid there.” This highlights the reactive nature of some regulatory responses, with frameworks often playing catch-up to market innovations.
Defining Investor Protection
The question of balancing innovation with protection requires clarity about what investors actually need protecting from. Angel outlined 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. Then 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 which may make their assets disappear.”
Beyond these fundamentals, he identified concerns about “abuse of selling practices that will hoodwink people into doing stupid things” and whether “investors can really understand some highly complicated products.” The most philosophically challenging question: “How much we want to protect people from their own foolishness.”
Angel noted that “we already have a well developed regime in options,” but suggested the conversation needs broadening. “However, we need to be concerned about other highly complicated products as well and should have a conversation about the right way to protect investors with these products.”
His proposed solution combines education with engagement: “As a teacher, I know that the only way to make sure that people reallllly understand something is to give them a test on it. One embodiment would be for a brokerage firm to give a 5 or 10 question multiple choice quiz before moving on to the next level.”
Angel envisions investors “leveling up” like video games, gaining experience points through quizzes and trading. “While the moralists decry gamification in investing, it can be very useful in education and reducing financial illiteracy. The natural desire for gold stars and status will lead people to do what is needed to gather the information they need.” He added that “investors can brag on Reddit that they are a ‘Level 5 Schwab’ or ‘Level 17 IBKR’ trader,” creating more educated clientele and reducing broker risk.
The Biggest Gap: Regulatory Structure Itself
When 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 well over 100 financial regulatory bodies in the United States and they don’t always play nicely together.”
He was particularly critical of the SEC-CFTC divide: “The never-ending battles between the SEC and CFTC over who regulates what are a joke. We are the only developed nation on the planet that has separate regulators for commodities and securities.” The historical reason? “The only reason we have a separate regulator today is that the SEC chair in the early 1970s, Ray Garrett, did not want the job of regulating the Chicago futures pits and lobbied Congress NOT to get jurisdiction over them.”
Prof. Angel called for comprehensive reform: “We need to think not only about SEC/CFTC and CFPB, but also the role of SROs, the states, and insurance and banking. It’s a heavy lift, but as they say, the longest journey starts with a single step. If we don’t start the conversation, we will never fix the mess.”
He cited the proposed GENIUS Act as exemplifying the problem: “It gives stablecoin issuers the choice of literally(!) 55 different regulators to choose from. What could go wrong?”
“If we get the regulatory structure right, then the regulators are likely to make better decisions,” he concluded.