Options? In Texas? Play That Again For Me ...

The County Line, by virtue of its self-described location on Bull Creek—or as locals call it, "the lake"—rather than in downtown Austin, might not be the most well-known of the Texas state capital's many barbecue destinations. But aside from its excellent ribs, it has one curiosity many others do not: a talking bathroom, which translates traditional American English into 'Texan'.

Appropriately enough, one of my favorites among the couple of phrases I was graced with was for, "Sorry, I didn't understand you," which in Texan translates to, "You're going to have to play that again for me". Like a record, in a jukebox.

This is Texas, y'all.

Teaching Moments
Austin, of course, is much more though. A hotbed of technology talent, it now hosts offices of Pine River Capital, whose CTO was profiled in Waters last year, and a frequent source of ours, Broadway Technology, among many other investment and shops and software providers focused on finance.

In fact, education was the theme throughout my trip last week, as it popped up—if in a far more refined form—throughout the annual Options Industry Conference, held this year at Lost Pines.

Above all there was a sentiment that options generally need more uptake to flourish, and the worry that the buy side—whether actively-managed hedge funds or public pension funds, and every investment manager in between—doesn't necessarily understand what it can do with these products, so much as fear how quickly they can go very, very wrong.

The questions were various: What number of exchanges is too many? How, just as the last panel did and the one before it, are we still talking about Flash Boys? And why, for the first and probably last time in recorded history, did Citadel sponsor a beverage-toting donkey? (I personally think it was a shrewd move.)

Over three days a lot of colorful debate ensued, but above all, there was a sentiment that options generally need more uptake to flourish. This was borne of the concern that the buy side—whether aggressive hedge funds or public pension funds, and every investment manager in between—doesn't necessarily understand what it can do with these products, so much as fear how quickly they can go very, very wrong.

You can't really grow the pie without their increased interest, various attendees agreed, but many veterans of options already like its microstructure: it has the fungibility futures don't, but without the dark pools, internalization, and suspicion that frustrates equities. So, how do you make options more popular otherwise?

I didn't exactly walk away with one "silver bullet" solution, because there isn't one. But a lot of suggestions were voiced, and unsurprisingly, many were of a technical nature.

They included standardizing the error and adjustment rules processing industry-wide, more clearing offerings for certain OTC products, and being more innovative about trade matching and crossing engines, which NYSE AMEX is doing with its new Cube auction mechanism. Then from the specialist vendors like Tradelegs and Austin's own S3, deeper analytics to help the buy side really understand how a complex spread option can—or can't—be optimally executed, and get a razorsharp handle on the 'greeks' it produces back at a portfolio level.

From the big and relatively easy, then, all the way down to very minute and mathematically complex, there is a lot still to be done—and a lot of details to be worked out. Having so much of the industry on the same page would seem a good first step.

I'm sure those conversations will continue at next year's gathering, in Miami. Whether the donkey—or talking bathroom—makes the trip remains to be seen, but that's why Austin is famously known for being "weird", and why it will be fondly remembered.

Speaking of Unique Buy Sides
Staying in the Lone Star State—and on the topic of education—for just a minute longer, it's also worth previewing an upcoming cover profile for Waters, which will take an in-depth look at the University of Texas's $32.6 billion endowment manager, Utimco, and its chief technologist, Uche Abalogu.

Mr. Abalogu, whose background includes stints at Goldman Sachs and a New York-based hedge fund, had a lot to say—about the burgeoning data requirements at a highly diversified endowment like his, the industry's efforts at better meeting them, as well as his newly-adopted state—and it is indicative of the way technology has moved upstream on the buy side that Utimco will be Waters' first profile of a public investor.

I look forward to telling his story.