Last month the Committee on Options Proposals (COOP) met to make the world a better place for equity options. The group was founded in the aftermath of October 1987 to clean up the tarnished image of these listed derivatives. At the meeting's helm sat the indefatigable Michael Schwartz of Oppenheimer, COOP's president.

The first item on Schwartz's agenda: getting exchanges to de-list moribund contracts. "Roughly 30-40 percent of listed options don't have any open interest," he says, echoing similar complaints from data vendors that are forced to list these walking dead. "It is fine to list new products and be innovative, but if the products don't work let's get rid of them." Exchanges, however, tend to be attached even to their ugly children. Schwartz counters, "If you keep throwing shit against the wall hoping that some of it is going to stick, then I'm afraid that one day the wall will fall down."

The exchanges culled some of their dogs under SEC pressure when multiple listing was introduced two years ago. But Schwartz believes that keeping the remaining contracts actually could be bad for the industry. He's afraid data vendors would arbitrarily drop some option coverage-something that's already happened at Barrons, The New York Times and the Wall Street Journal. To bring relief to data vendors, COOP has proposed that exchanges withhold data at the opening on the large number of index options that lack open interest.

COOP-which is made up of 40 voting member firms plus the various exchanges-has also lobbied for more standardization of products and practices. "It's a subject on which I've been on the warpath," Schwartz says. One notable achievement dealt with Long-dated Equity Appreciation Options (LEAPS). When LEAPS were first introduced, every exchange had different specifications and practices. COOP stepped in and knocked heads until all agreed to voluntary uniform rules.

COOP also persuaded all exchanges to close trading at 4:15. Now it wants them to move the bell back to 4:00. "The trouble with the 4:15 close," says Schwartz, "is that the underlying trading of equities stops at 4:00. So when you go down to execute an option, the specialist or market maker has no place to trade off the exposure and hedge the position. His prices may be higher because he's going to have to take the risk of that position overnight. We tell our customers, 'Don't enter the market-at-close orders and don't try to buy after 4:00 when you hear news-because you are going to have to pay up.'"

CFTC regulators are on the Congressional mat, pressured to justify their exercise of power in the now- famous Metallgesellschaft (MG) case. The swaps industry has been fuming for months over what it perceives as the Commodity Futures Trading Commission's oblique attack on the unregulated OTC swap market. Last summer CFTC regulators voided oil swaps sold by MG as illegal off-exchange futures contracts and fined the company $2.25 million. Since then the CFTC has not explained its actions in detail and has denied it was using this situation to expand prerogatives.

Enough, said two powerful members of the House.

Last month Pat Roberts, chairman of the Committee on Agriculture, and Thomas J. Bliley, Jr., chairman of the Commerce Committee, wrote to the CFTC and said they wanted the agency to back off. Echoing the line of the International Swaps and Derivatives Association (ISDA), the two congressmen declared that in voiding the MG swaps, the agency was reversing the exemption of swaps from the 1936 Commodities Exchange Act that makes the trading of off-exchange futures illegal and "may have the potential to call into question the status" of other privately negotiated swap contracts.

The two congressmen have shown shrewd timing. The CFTC has a lame duck chair, Mary Shapiro, who is leaving to head up regulatory efforts at NASDAQ. Washington insiders interpreted their letter as a veiled warning to an agency that has been under attack for ineptitude. Translation: despite the CFTC's verbal denials that the Metallgesellschaft incident does not establish a precedent, nerves remain frayed in the OTC swap business.

Even Good Guys are not immune to the job squeeze in derivatives. Last month Merrill Lynch announced William S. Broeksmit would take a leave of absence after ten years with the firm. Taking his place at the helm of its global stock derivatives business, which Broeksmit helped build from scratch, is Sergio Ermotti. Rumor has it that Broeksmit may bail out of the securities business altogether. Could be that his failure to avert the Orange County mess contributed to a disenchantment. In February 1993, he reportedly warned top management in a memo of the County's enormous exposure should interest rates rise, but Merrill continued to sell it risky securities.

Meanwhile, at Bankers Trust, a second outside heavy has been brought in and given wide authority to help put the company back on track. In mid-January CEO Frank Newman appointed Richard Daniel as the new CFO. Daniel had been CFO at Freddy Mac (Federal Home Loan Mortgage Corp.) Both men had worked together at Wells Fargo and BankAmerica Corp for 12 years. Newman was hired away from the US Treasury last year.

Corporate hedgers take note: more multinationals are appointing risk czars and giving them the clout to control and manage risks throughout a company's far-flung operations. The latest example is UNOCAL, which recently appointed William T. Wilson to a new post: vice president of commodity trading and risk management. Wilson will report directly to Roger Beach, the firm's chairman and CEO, rather than to the treasurer or CFO.

"In the past, UNOCAL has not been terribly aggressive in terms of price risk," admits Wilson. "The company would simply take the best possible market price they could get, and was comfortable with that. The new risk management position was created as part of UNOCAL's new position on price risk. Although we are not making a headlong leap into the derivatives market, we do plan to be more proactive about managing our exposures." The firm's primary objective is to reduce the overall volatility of its cash flows and to preserve revenues that might otherwise be lost to turbulent markets.

Another goal is to provide customers with new pricing options and risk management services. "In the past, we felt that wholesale margins on crude oil and natural gas were adequate," Wilson explains. "But in today's markets, increasing price transparency has brought margins down, so we need to offer more value to our customers." Some have requested pricing arrangements including caps and floors, and Wilson hopes to offer customers as much flexibility as possible.

Wilson's first step? Analyzing exposures and evaluating any natural hedges and correlations existing among the company's various business units around the world. Then his department went on a firm-wide volatility hunt: "When we hedge we want to get as much 'bang for the buck' as possible, so we've spent some considerable time analyzing where, exactly, our volatility comes from," he explains.

His team is also close to establishing quantitative benchmarks that will clearly demonstrate the success-or failure-of the risk management initiative as it progresses. And he's working on installing a firm-wide risk management system that will make it easier to monitor and track both physical and financial deals. UNOCAL believes it will be more cost effective to purchase a system from an outside vendor than to build it from scratch, and is looking at systems already on the market.

Wilson, who is also responsible for the company's marketing efforts in domestic and international crude oil and in North American natural gas, was previously manager of gas marketing and trading for British Petroleum in Houston.