US equity options exchanges are seeking to change the way that regulatory fees are charged, moving away from a decades-old practice that allows them to pick up fees for business transacted on rival bourses.
The Options Regulatory Fee, or ORF, is a catch-all term for the collective fee that exchanges charge customers for buying and selling options through them. The money collected by the Options Clearing Corp., the central clearinghouse for US stock options, goes toward helping exchanges cover compliance costs, such as market surveillance.
But a quirk of the way the ORF is currently charged has long caused discord in the options market, especially with volumes having soared since the Covid pandemic and with the rise of zero-days-to expiry contracts: Customers get charged by exchanges that don't list their contracts, as well as the ones that do.
This matters because while the fee per contract is negligible at usually just a fraction of a cent, it all adds to the cost of doing business. The exchanges are estimated to have earned $181 million to $234 million over the course of 2025 from the ORF alone, according to a person familiar with the matter.
It's an unusual setup -- there are few other industries where competitors can charge a fee on business transacted at a rival enterprise. Now the largest bourses, including those operated by Cboe Global Markets Inc., Nasdaq Inc., and Miami International Holdings, Inc., have filed with the Securities and Exchange Commission asking to move toward a system where exchanges will only charge ORF on their own transactions.
"There are a significant number of options exchanges today that can essentially start charging revenue on transactions that are not occurring on their own markets," Greg Hoogasian, the chief regulatory officer at Cboe, said in an interview. "We want to address the core issue and that is going to a model that we think is more reasonable and more sustainable."
Proponents of ORF reform want to move to an "eat what you kill model" where "you really are just assessing fees on transactions on one's own exchange," he added.
For example, Cboe is the only exchange that lists S&P 500 Index options, a proprietary product. But other exchanges can currently pick up ORF fees whenever an SPX contract is traded.
"When you talk about the proprietary products, it really makes no sense that other exchanges are assessing a fee on that," said Hoogasian. "There's really no regulatory purpose for them to have to be looking at transactions that relate to SPX because it's our own proprietary product and our regulatory team is looking at that activity."
Listed US options are a tightly regulated marketplace, where every transaction must be subject to order competition on an exchange. Single stock contracts are fungible between exchanges, making it common for contracts bought on one exchange to be sold on another.
The number of options exchanges in the US has sprawled from six in 2006 to 18 today, with another two set to launch later this year. There are concerns that the growing number of exchanges adds to costs for market participants and offers an advantage to the largest market makers, which can afford the additional costs of connecting to multiple exchanges.
One sticking point for the entrenched exchanges is that the rule subsidizes new entrants, which stand to receive regulatory fees in greater proportion to the volume they handle.
A common complaint from some exchanges in the SEC proposals is that each exchange calculates its own fee based on its regulatory budget, rather than there being a standard across all the exchanges. And it's collected differently as well -- some exchanges collect a fee no matter where the option trades, while others only collect on trades only at exchanges under the same parent.
Longstanding Issue
The fee structure isn't a new issue, but one that's been discussed across the market in recent years. ORF reform has been raised by market makers for years, with Optiver calling for the levy to be reformed in an April 2024 paper. Nasdaq put forward a plan to scrap ORF changes on non-Nasdaq business in November 2024, but it later fell by the wayside when other exchanges declined to get on board.
Not all exchanges have fully embraced the proposed change so far.
BOX Options Exchange, a single-stock options venue part owned by Canadian exchange operator TMX Group, has yet to make any formal proposal on ORF reform. A spokesperson for BOX declined to comment.
While the individual exchanges set their own policies, they do so in consultation with the SEC as their regulator. In May, SEC commissioner Hester Peirce acknowledged that it was looking into the issue.
"We don't normally get into a round table discussion with the other exchanges about what they're doing and not doing because we want to be respectful of potential antitrust issues," said Cboe's Hoogasian. The exchange incorporates SEC feedback "into our thinking, into our filings and what we're doing," he said.
"The onus is on them to be working with the other options exchanges on what they should or should not be doing in their minds as the regulator."