Tag 77: OpenClose

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Imported from previous forum

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How should tag 77 (OpenClose) be handled?

Ex:

  1. Position: 0. NewOrder: buy 100. Open/Close?

  2. Position: 0. NewOrder: sell 100. Open/Close?

  3. Position: 100. New Order: sell 100. Open/Close?

  4. Position: 100. NewOrder: sell 100, Open/Close? + NewOrder: sell 100, lower price. Open/Close?

  5. Position: 100. NewOrder: sell 200, Open/Close?

// Anton Varnäs

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[ original email was from Jim Northey - jnorthey@lasalletech.com ]
> How should tag 77 (OpenClose) be handled?
>
> Ex:
>
> 1) Position: 0. NewOrder: buy 100. Open/Close?
>
> 2) Position: 0. NewOrder: sell 100. Open/Close?
>
> 3) Position: 100. New Order: sell 100. Open/Close?
>
> 4) Position: 100. NewOrder: sell 100, Open/Close? + NewOrder: sell 100, lower price. Open/Close?
>
> 5) Position: 100. NewOrder: sell 200, Open/Close?
>
>
> // Anton Varnäs
>
Sorry for the long delay in reply. Please refer to an options text book on handling open and close position codes. Open and Close codes are created to support omnibus accounting. This is where multiple customer orders are kept in the same account with a clearing (or brokerage) firm. The open and close code is used to indicate for a specific customer if the buy or sell of a security is being done to open a new position or to close an existing position. Another term for this is that positions are held "gross" instead of "net".

Scenario:

There are two customers A and B. Both are customers of a clearing firm.

Customer A buys 1 OEX call option. Since this is a new position this is an "opening position"
Customer A Buys 1 OEX Call Open

Note: I am ignoring strike and expiration in this example for brevity.

The account at the clearing firm would appear as follows:

Long Short
1 0

Customer B buys 1 OEX call option. Since this is a new position this is an opening position, as well.
Customer B Buys 1 OEX Call Open

The account appears as follows
Long Short
2 0

Customer B decides now to sell their option.
Customer B Sells 1 OEX Call Close

Since this is a closing position, the amount is deducted from the account:

Long Short
1 0

Now Customer B decides that they want to be short 1 contract (say to do a covered write of an underlying stock), so they sell a contract - but this sell is to open a short position:

Customer B Sells 1 OEX Call Open

The account will reflect the opening sell as:

Long Short
1 1

Without the open/close accounting there would be no way to keep long and short positions for multiple customers (omnibus accounting) in one account.

In general - the original position in a security is an opening buy or sell. To remove or "close" that position the oposite action is taken as a closing transaction.