Options regulatory fee: Meaning, Criticisms & Real-World Uses

What Is Options Regulatory Fee?

The options regulatory fee (ORF) is a per-contract fee charged to investors when they sell options contracts. This fee falls under the broader category of transaction costs within securities regulation, intended to cover the expenses incurred by self-regulatory organizations (SROs) for supervising and regulating the options markets. The primary purpose of the ORF is to help fund the oversight activities that ensure fair and orderly trading in the complex world of options contracts.

Administered by various securities exchanges and collected by The Options Clearing Corporation (OCC), the ORF supports crucial regulatory functions such as market surveillance, investigations, and enforcement activities. Investors typically see the options regulatory fee passed through by their broker-dealer on their trade confirmations.

History and Origin

The concept of fees to cover regulatory oversight has long been a part of the financial markets. The options regulatory fee specifically was instituted in 2009 by the Chicago Board Options Exchange (CBOE), the largest U.S. options exchange, and subsequently adopted by other U.S. options exchanges. Its creation aimed to recover a portion of the costs associated with the rigorous rulemaking and supervisory responsibilities of the exchanges and the OCC over the burgeoning options market. The fee ensures that the regulatory bodies have the necessary resources to maintain market integrity and investor protection. Today, nearly all U.S. options exchanges assess the ORF on trades that clear in the customer range at the OCC.¹²

Key Takeaways

The options regulatory fee (ORF) is a charge levied on the sale of options contracts.
Its primary purpose is to fund regulatory activities that oversee the options markets.
The fee is typically passed on to investors by their brokerage firms.
The Options Clearing Corporation (OCC) collects the ORF on behalf of U.S. options exchanges.
The ORF contributes to the overall cost of investing in options.

Formula and Calculation

The options regulatory fee is typically calculated on a per-contract basis, meaning a fixed amount is charged for each options contract sold. The rate is set by the individual options exchanges but collected centrally by the OCC. While the precise rate can vary and is subject to change, the calculation is straightforward:

\text{Options Regulatory Fee} = \text{Number of Options Contracts Sold} \times \text{ORF Rate Per Contract}

For instance, if the ORF rate is ( $0.02 ) per contract and an investor sells 10 options contracts, the fee would be ( 10 \times $0.02 = $0.20 ). This fee is distinct from brokerage commissions or the bid-ask spread associated with the trade itself.

Interpreting the Options Regulatory Fee

The options regulatory fee is a direct cost that investors incur when selling options. From an investor's perspective, interpreting the ORF involves understanding it as a mandatory, pass-through charge designed to support the regulatory framework of the financial markets. It is not a profit-generating fee for the brokerage firm but rather a regulatory expense that the firm collects and remits to the relevant authorities. While generally small on a per-contract basis, it adds to the overall transaction costs of options trading. Active options traders, those who execute a high volume of trades, may see the cumulative impact of the options regulatory fee become more significant over time. Investors should review their trade confirmations to identify this and other regulatory charges.

Hypothetical Example

Consider an investor, Sarah, who decides to sell 5 call options on XYZ stock. Each options contract typically represents 100 shares of the underlying asset. Assuming the current options regulatory fee is ( $0.03 ) per contract, the calculation of the ORF for Sarah's trade would be:

Determine the number of contracts sold: Sarah sells 5 options contracts.
Identify the current ORF rate: Let's assume the ORF rate is ( $0.03 ) per contract.
Calculate the total ORF: ( 5 \text{ contracts} \times $0.03/\text{contract} = $0.15 ).

So, in addition to any commission charged by her broker or the price she receives for the options, Sarah would pay an options regulatory fee of ( $0.15 ). This amount would be debited from her account, typically reducing the net proceeds from her options sale. This example illustrates how a seemingly small per-contract fee can add up depending on the trading volume in an investment portfolio.

Practical Applications

The options regulatory fee is a standard component of regulatory compliance in the U.S. options markets. It appears as a separate line item on trade confirmations when an investor sells options. For instance, brokerage firms like E*TRADE and Charles Schwab explicitly mention the options regulatory fee in their fee schedules, noting it is assessed by each options exchange and collected by The Options Clearing Corporation.¹¹,¹⁰ These fees are critical for funding the operations of self-regulatory organizations (SROs), such as the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), which are responsible for maintaining fair and efficient markets. The Options Clearing Corporation (OCC) publishes a detailed schedule of its fees, which includes charges related to options transactions.⁹ These fees ensure that there is sufficient funding for the oversight of order flow and trading activity in the options market.

Limitations and Criticisms

While the options regulatory fee serves a legitimate purpose in funding market oversight, its main limitation from an investor's perspective is that it adds to the overall cost of trading. For investors who engage in high-frequency trading or strategies involving a large number of options contracts, even a small per-contract fee can accumulate significantly. This cumulative effect is a common critique leveled against various trading fees and expenses. Advocates of low-cost investing, such as the Bogleheads community, emphasize the importance of minimizing all investment-related costs, including regulatory fees, as these can erode long-term returns.⁸ As noted by a Forbes article, investors often overlook these less obvious transaction costs, which can significantly impact net returns.⁷ The fee's primary criticism generally stems from its nature as an unavoidable cost rather than specific issues with its administration, although transparency regarding how these funds are utilized is always of interest to market participants.

Options Regulatory Fee vs. Section 31 Fee

The options regulatory fee (ORF) and the Section 31 fee are both regulatory charges imposed on securities transactions, but they differ in their scope and the regulatory body that primarily benefits.

Feature	Options Regulatory Fee (ORF)	Section 31 Fee
Scope	Applies specifically to the sale of options contracts.	Applies to sales of most securities, including stocks and certain options.
Primary Beneficiary	Funds the regulatory activities of options exchanges and The Options Clearing Corporation (OCC).	Funds the U.S. Securities and Exchange Commission (SEC) to cover the costs of supervising and regulating the securities markets and professionals.⁶
Collection	Collected by the OCC on behalf of options exchanges.	Collected by national securities exchanges and FINRA, which then remit the funds to the SEC.
Purpose	To recover costs related to the supervision and regulation of options markets.⁵	To offset government costs of regulating and overseeing the securities markets.⁴

While both are pass-through fees ultimately borne by the investor on sell-side transactions, the ORF is specifically tied to options market regulation, whereas the Section 31 fee is a broader charge for overall securities market oversight. The SEC regularly adjusts the Section 31 fee rate. For instance, in April 2025, the SEC announced that the Section 31 fee rate would decrease to $0.00 per million dollars for covered sales on or after May 14, 2025, after having collected its fiscal year 2025 appropriation.³,²

FAQs

Who charges the Options Regulatory Fee?

The options regulatory fee is charged by the individual options exchanges (e.g., CBOE, NYSE Arca, Nasdaq PHLX) but is collected on their behalf by The Options Clearing Corporation (OCC). Your brokerage firm then passes this fee on to you.

Why do I have to pay the Options Regulatory Fee?

You pay the options regulatory fee to help fund the oversight and regulatory activities of the options markets. This includes expenses for market surveillance, investigations, and other efforts to ensure fair and orderly trading and protect investors.

Is the Options Regulatory Fee the same as a commission?

No, the options regulatory fee is distinct from a commission. A commission is a fee charged by your brokerage firm for executing a trade. The ORF is a separate regulatory fee that your broker collects from you and remits to the relevant self-regulatory organizations.

Can I avoid paying the Options Regulatory Fee?

No, the options regulatory fee is a mandatory regulatory charge applied to the sale of options contracts. It cannot be avoided when executing such transactions in the U.S. options markets.

How often does the Options Regulatory Fee rate change?

The options exchanges are required to announce changes to the options regulatory fee rate, and these changes typically become effective on specific dates, often February 1 and August 1.¹ However, the exact timing and frequency of changes can vary depending on regulatory needs and approvals.