The Securities and Exchange Commission (SEC) is set to vote on a proposal to cap fees for trading options, something that is very important if your preferred trading habits include contracts versus shares.
Bloomberg reported that the rule is “backed by brokerages who say getting the best bid or ask price for their customers sometimes costs too much.”
How convenient for the brokers. It’s as if they’re saying, “I want to get you the best price in the market, but it costs me too much to give you that kind of market efficiency.”
Bloomberg further cited that Citadel Investment Group LLC petitioned back in July 2008 “to limit charges by exchanges to execute against orders on their books.”
The basis is that the SEC requirements that brokers buy and sell securities on behalf of clients at the best market price could lead to excessive fees and mask the true prices. The attack may sound silly on the surface, but the argument is really about unlimited market access fees, and there is at least some validity there.
Citadel proposed a fee cap of 20 cents per option contract, and TD Ameritrade (AMTD) is hoping for under 10 cents.
This won’t be a shock to anyone, but some of the exchanges have opposed fee caps. Go figure. Fee caps are not endorsed by all. This also ties in with the attack on flash orders, although that is perhaps a different argument.
At issue is that exchanges and platforms have gone after fees and rebates in recent years. Investors should be concerned about ANY new rules and regulations. It should also be known that any new proposal would require another formal vote before becoming effective, and that would be after a public comment period.
The argument may not be clear to many. Having an exchange fee of less than 10 cents per contract is obviously better than a 40-cent fee on the surface. It shouldn’t matter too much to retail investors, as long as they are not buying options that have a quoted price of a nickel. Of course, if it costs a hypothetical $100,000 per month for access to the best quote, then that nickel quote is far more.
As always, watching out for your pocketbook.
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